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Labor union objectives under a multi-contract period time horizon

University of British Columbia

Most microeconomic models of Labor unions take the union's membership size as exogenous, and limit union members' time horizons to a single contract period. Particularly for unions allocating employment by means of a seniority system, and for unions facing stochastic demand for labor conditions, these limitations in current union models lead to unsatisfactory predictions of union behavior. In this thesis, an n-period majority voting model of a monopoly union facing a fixed demand for labor schedule and allocating employment by seniority is developed to show the interdependence between the union's present wage choice, the size of the union's future voter pool and its future wage choices. Union members are assumed to predict the union's future voting behavior, and to account for the consequences of the retirement of senior union members. The optimal contract wage is shown analytically to be not lower than that wage which causes the layoff of twice the number of retiring workers per contract period in each contract period, and not to exceed the wage level at which half of the union's present voter pool would lose its union employment. Computer simulation solutions for various demand conditions suggest that after a potential sharp first-period increase in the contract wage, the union's contract wage path follows its analytically derived lower limit - with each contract, union employment declines by twice the number of retirees per contract period. The time path of union employment is shown to be largely independent of anticipated changes in demand for labor. A similar two-period model is developed for stochastic demand for labor conditions. For some cases, the union's wage choice can be shown to be lower when the consequences of this period's wage choice on next period's voter pool are taken into account. Majority voting instability problems cannot be ruled out for this type of model, and are interpreted as a potential cause for a union-internal political process. These seniority-based models are then compared with models where union employment is allocated by a random draw among union members. With nonstochastic demand for labor, this allows for the analysis of discrete changes in union rules, and yields the principal prediction that the union will eventually replace an employment by random draw rule with employment according to seniority. The economic approach to the analysis of union behavior is assessed critically, and put in some perspective by an informal discussion of other union-internal determinants of union behavior. In conclusion, it is suggested that the formal prediction of an ongoing gradual decline in union employment may be usefully amended by considering potential benefits from union size maintenance and union membership rejuvenation.

Text

2010-07-23

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http://hdl.handle.net/2429/26854

Economics

University of British Columbia

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