Trade Union and Global Economic Growth

Abstract

This paper develops a simple framework for examining the role of unions in a global economy. It builds on the model of different institutions by comparing America with a flexible wage and Europe with a rigid wage (the existence of union), where the two areas are integrated via perfect capital mobility. We find the necessary condition that the degree of wage orientation of the union is larger than the firm's bargaining power and determines the positive direction on global economic growth. In addition, the effect of union's bargaining power on global economic growth is ambiguous. If the sum of the elasticity of substitution between capital and labour and the output elasticity of labour is smaller than one, or the firms are characterized by a Leontief production function (Harrod–Domar growth model) or an extremely low substituting elasticity (much empirical literature is supported), the union's bargaining power will lead to an increase in the growth of the global economy. In the general Cobb–Douglas production function (Solow–Swan neoclassical growth model), the union's bargaining power will result in a decline in the growth of the global economy.

Keywords:

• Union
• right-to-manage
• bargaining
• overlapping generations
• economic growth

JEL CLASSIFICATION:

• J50
• O40

Acknowledgements

I would like to thank the Editor and three anonymous referees for their constructive suggestions and insightful comments.

Notes

1. For example, the production function follows a popular Cobb–Douglas form.

2. For a non-negative wage, we assume that 1−θ−θβ{((1−ϵ _K )/s _L )−1}>0.

3. See Appendix A.

4. Following Irmen and Wigger (2006), if E _t+1>0, country e is a net capital exporter and a net capital importer otherwise.

5.

6. See Appendix B.

7. See Appendix C.