TRADE UNIONS, UNEMPLOYMENT, ECONOMIC GROWTH, AND INCOME INEQUALITY

In this paper, unemployment, growth, and income inequality are interdependent and endogenously determined in a unified model of a trade union. Analytically, we show that the effective labor force exhibits an intensive margin response, in the sense that in response to higher unionization the number of employed workers decreases, but each individual employed worker provides more working hours. This intensive margin response leads to the possibility of the coexistence of high unemployment and high growth. Moreover, unionization gives rise to an ambiguous effect on income inequality, whereas it has an unambiguously positive effect on the labor income share and growth rate. Our numerical study shows that the elasticity of substitution between labor and capital plays an important role in governing the steady-state consequences and affecting the impact of (de-) unionization. These results provide not only a plausible explanation of the empirical evidence, but also a reconciliation for the disparity in the empirical findings.