Collective Bargaining - Economic Theory

Economic Theory

Different economic theories provide a number of models intended to explain some aspects of collective bargaining:

  1. The so-called Monopoly Union Model (Dunlop, 1944) states that the monopoly union has the power to maximize the wage rate; the firm then chooses the level of employment.
  2. The Right-to-Manage model, developed by the British school during the 1980s (Nickell), views the labour union and the firm bargaining over the wage rate according to a typical Nash Bargaining Maximin (written as Ώ = UβΠ1-β, where U is the utility function of the labour union, Π the profit of the firm and β represents the bargaining power of the labour unions).
  3. The efficient bargaining model (McDonald and Solow, 1981) sees the union and the firm bargaining over both wages and employment (or, more realistically, hours of work).

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