Do Trade Unions Actually Worsen Economic Performance?

Abstract

The answer to the question in the title of course depends on how we define economic performance. In an overlapping generations model we show that trade unions do worsen economic performance in the sense that we get uemployment, but it is quite likely that trade unions give rise to a higher growth rate than what would have been the case if the labour market were ambiguous. One surprising result is that trade unions give rise to an unambiguous decrease in welfare if bargaining is over all variables affecting the bargaining parties (i.e. "efficient bargaining"), whereas welfare may increase if bargaining is only over a subset of the variables affecting the bargaining parties (e.g. training and wage).

JEL Classification: E24, J51, O41