Fairness Considerations in Labor Union Wage Setting: A Theoretical Analysis
- Publication Type
- Journal contribution (peer reviewed)
- Authors
- Strifler, Matthias and Beissinger, Thomas
- Year of publication
- 2015
- Published in
- Scottish Journal of Political Economy
- DOI
- 10.1111/sjpe.12094
We consider a theoretical model in which unions not only take the outside option into account, but also care about the performance of the firm and base their wage-setting decisions on a firm internal reference, called the fairness reference. Two references, which measure the earnings situation of the firm, are considered – productivity and profits per worker. Wage and employment outcomes as well as the degree of wage rigidity depend on the size of the fairness reference relative to the outside option. A high fairness reference leads to wage pressure and real wage rigidity, whereas a low fairness reference leads to wage moderation and real wage flexibility. An increase in the weight on the fairness reference amplifies these deviations from the standard model.