International Market Integration and Union Wage Bargaining

Abstract

(1989), in particular, examines the relationship between the number of competing union-firm bargaining units and wage demands for a fixed market size throughout. Unions and firms in Dorwick (1989) are assumed to reach efficient bargaining outcomes. This paper instead examines the case where the change in market structure is accompanied by a change in market size, and where, in the monopoly union model, the bargaining outcome is inefficient. We specifically analyze the integration of two single union-firm bargaining units into a unified market with two bargaining units. The creation of firm level competition first increases the elasticity of labor demand facing each individual union. This moderates each union's wage demand. Lower wages and increased goods market competition then lead to higher employment. The end result is that market integration can benefit firms and unions alike. With linear product demand, in particular, integration benefits both bargaining parties, if unions maximize the wage bill and firm level output competition is Cournot. The possibility that market integration benefits all parties only arises because the original pre-integration bargaining outcomes are inefficient. The main result that goods market integration can benefit firms and unionized workers has been derived

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