Unionised labour market, environment and endogenous growth

Abstract

This paper develops an endogenous growth model where the labour market is unionised and the labour union is concerned not only about wages and employment but also about workers’ health, safety and environmental protection. Bargaining takes place between the labour union and the firm; and, in the bargaining solution, the firm is forced to forgo a share of its output to choose a more environment-friendly but less productive technology. The government finances public abatement expenditure using proportional income tax. We analyse properties of the welfare maximising income tax rate as well as the growth rate maximising one. We also analyse how the employment orientation bias in the preference structure of the labour union plays an important role to ensure a positive effect on the employment level, economic growth rate and on the level of welfare.