Abstract
A general equilibrium model of a small open economy with traded and nontraded goods and sector specific trade unions is set up. Wage formation is either noncooperative or cooperative. Egalitarian union wage policy is shown to be the equilibrium under cooperation. Important asymmetries are encountered and an alternative model of cooperative behavior called bargaining cooperation is proposed. Bargaining cooperation is shown to have qualitatively different implications than simple cooperation. The welfare and employment effects of bargaining cooperation compared to simple cooperation are ambiguous.
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