Wage Bargaining, Employment, and Union Power: The Right-to-Manage Approach

Abstract

This paper analyzes the implications of right-to-manage wage bargaining between a producers' syndicate and a workers' union representing finite numbers of identical members in a monetary macroconomic model of the AS-AD type with government activity. At given prices and price expectations, nominal wages are set according to a Nash bargaining agreement. Producers then choose labor demand and commodity supply to maximize profits at given output prices. The commodity market clears in a competitive fashion. Unique temporary equilibria are shown to exist for each level of relative power of the union. These equilibria may exhibit under- or overemployment, depending on the level of union power. The paper presents a complete comparative-statics analysis of the temporary equilibrium, in particular of the role of union power on employment, wages, and income distribution, including a variety of different qualitative features compared to the situation under efficient bargaining. These differences arise primarily from a supply-side effect of union power under the right-to-manage approach as compared to a demand-side effect under efficient bargaining. In addition, the dynamic evolution under perfect foresight is monotonic with two co-existing balanced steady states, one of which is stable under certain conditions. These properties are qualitatively identical to those under efficient bargaining or under perfect competition.