The Union-Firm Bargain

Abstract

In the beginning of research on wage determination under trade unionism it was not the form of the model that was contentious; the question was if it is feasible to assume a utility maximizing trade union at all. The different positions are well documented in two monographs by Arthur M. Ross and John T. Dunlop. Ross (1948) was very critical of attempts to model union behaviour in the standard way: “Among all the participants in economic life, the trade union is probably least suited to purely economic analysis” (p. 7). He was not against economic analysis in general, but he thought that the trade union is a political institution and the wage bargain is primarily influenced by nonquantifiable pressures, which cannot easily be incorporated in a formal model. In his opinion, a model that reduces the union to a kind of enterprise maximizing a simple objective function would be an undue abstraction that “so oversimplifies human behaviour as to leave it unrecognizable and unexplained” (p. 21). This view was challenged by Dunlop (1950). In the preface to the second edition of his book he states that “it is not to be denied that the institutions of the collective bargaining process have some independent effect on wage rates... But the thesis must be rejected that wage determination under collective bargaining is to be explained most fundamentally or fruitfully in terms of a political process” (p. iii). When examining the future course of the economics of the trade union, one can only conclude that the view of Dunlop has succeeded in the long run. But one should keep in mind that the explanations and models discussed here are incomplete and the level of abstraction is clearly very high. Taken together with the data and aggregation problems one generally faces in empirical analysis, we should not be too optimistic regarding an empirically successful model of wage setting on the macroeconomic level. However, this should not hinder attempts to model union behaviour as primarily economic in nature and base statistical models of wage setting on such an analysis. In the end, for an economist, this is the natural route to follow. KeywordsTrade UnionLabour DemandWage EquationBargaining SolutionReservation WageThese keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.