Unions, Efficiency and Bargaining when Workers have Heterogeneous Productivity

Abstract

This thesis proposes and analyzes micro-theoretic models of the strategic interaction between heterogeneous workers and a union, and that between a firm and a union. We assume union membership increases the bargaining power of the workers, but decreases their productivity. The workers and the firm produce a surplus. The union bargains on behalf of all workers, trying to maximize their surplus, which is a share of the total surplus. This thesis focuses on studying equilibria in which the least productive workers join the union, but the most productive workers do not. For each model, we show that such an equilibrium exists, is unique, and is robust to coalitional deviations. We find expressions for the equilibrium union size, union density, the wages of union and non-union workers, the surplus and profit of the firm, and the respective bargaining powers of the workers and the firm. The models' comparative statics are also studied. Equilibrium variables are compared across the models to gain insight into the union's preferences on performance related pay. We also study how differences in the workers' productive levels affect their incentives to join the union. The most striking result that holds across the models is that the firm's surplus and profit can sometimes increase with the inefficiency coefficient of the union. This suggests there can exist situations where firms have a perverse incentive to make union workers less efficient compared to non-union workers. We also find that union membership and salaries decrease with the inefficiency coefficient of the union. This suggests that unionized workers always prefer to be as efficient as their non-unionized colleagues. We find that union wages are generally lowest when they are linked to a worker's output, suggesting that unions may have incentives to oppose performance related pay for their members. Show more