Union Wages, Hours of Work and the Effectiveness of Partial Coordination Agreements

Abstract

Small monopoly trade unions decide upon the wage rate per hour and the hours of work subject to firm's demand for union members. Since the resulting Nash equilibrium is characterized by excess unemployment, we study the employment and welfare effects when trade unions try to coordinate their policies. Firstly, we consider a joint agreement about marginal wage moderation, where trade unions remain free to choose the hours of work non-cooperatively. Secondly, we analyze in which way a joint change in the hours of work affects employment and welfare if trade unions are free to choose the wage rate.