DP1399 A Theory of Union Power and Labour Turnover

Author(s): Kai-Uwe Kühn, Atilano Jorge Padilla
Publication Date: May 1996
Keyword(s): Bargaining, Insider-Outsider Theory, Quits, Underemployment, Unions, Wage Determination
JEL(s): J30, J41, J51
Programme Areas: Human Resources
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=1399

In this paper we develop a theory of union bargaining power based on firm-specific skills acquired by the insider work-force. We show that unions increase the bargaining power of insiders only in states of the world in which the firm would like to retain insiders but not hire outsiders. Union formation leads to inefficient retention of workers in the firm. Furthermore, new workers are hired at wages below the going market rate. Union power may either increase or decrease the amount of hiring of the firm, however. This paper can thus be understood as developing an insider-outsider theory in which harrassment or discrimination of new workers by the insider work-force is neither individually rational nor needed to explain inefficient hiring decisions or union formation.