A MATHEMATICAL MODEL OF A MACRO-FOCUSED LABOR UNION

This paper investigates the roles played by a macro-focused union in the stabilization of the employment level and wages during periods of demand shocks. A macro focused union sets the wage at the level which maximizes employment and provides union benefits to union members to counter free ridership. We set up a solid micro-foundation to derive the industry labor demands in normal periods and in periods with shocks. We argue that the roles played by the macro focused union lead to a more stable employment level which is beneficial to both the employers and employees.