What do unions do (to nonunion workers)?

Abstract

This paper develops a model of wage and employment determination under the threat of unionization. The model shows that this threat generally leads nonunion firms to pay higher than competitive wages and to set a level of employment equal to or higher than the competitive employment level. This result holds independently of the model used to represent union-management bargaining, as long as it exhibits an intuitively appealing trade-off between wages and employment (monotonicity). The right-to-manage and the Nash-bargaining models are shown to be monotone, so the result extends to the most commonly used models of unionmanagement bargaining.