THE WAGE DEMANDS OF A SELFISH, PLANT-SPECIFIC TRADE UNION

Abstract

paper takes an extreme form of this supposition as its basic assumption. It is assumed that a union is only concerned with the interests of its currently employed members. Altruistic feelings for the unemployed and/or a positive valuation on the size of membership are assumed away. A similar approach is taken in the literature on insiders and outsiders in wage determination (see for example Lindbeck and Snower (1986)). We analyse the wage demands of a selfish union operating in an environment where the union sets the wage and the employer unilaterally controls employment. For simplicity, efficient bargains as in McDonald and Solow (1981) are ignored. The basic model of a selfish, plant-specific trade union is set out in Section II. In Section III it is shown that for this model there is a tendency for employment to contract. The existence of economies of scale are shown, in Section IV, to be capable of halting the employment-contraction bias. However the resulting model exhibits extreme wage flexibility and no employment flexibility. In Section V the assumption that the trade union is perfectly well informed about the position of the labour demand curve is relaxed. This change of assumption does not alter the characteristic of flexible wages and rigid employment. In Section VI the frequency of recontract is restricted. This restriction is shown to lead to wage rigidity, of, however, only a temporary nature. Sections VII and VIII discuss multiunion plants and the inclusion of non-labour costs of production. Finally in Section IX long-lasting wage rigidity and employment flexibility is extracted from the model of the selfish, plant-specific trade union by assuming that the output of the plant is sold in a customer market. In Section X some macroeconomic conclusions are drawn from the analysis.