Department of Economics. University of Melbourne. Parkville Victoria
3052 Australia
ABSTRACT
The paper extends the theory of trade unions. In past studies, the
union members derive utility exclusively from the consumption of goods
produced in markets. We consider the case where the union insider is a
member of a household which derives utility both from market produced goods
and from a non-market activity (such as household production or leisure).
The household consists of people who divide their time between employment,
the non-market activity and searching for work (unemployment). The model
in the paper determines the equilibrium levels of the bargained wage, employment,
unemployment, discouraged workers and non-market activity. The impact on
these equilibrium levels of changes in the real demand for labour and changes
in the productivity of non-market activity is derived. It is shown that
the nature of this impact depends on the elasticity of substitution of
the market good for the non-market activity. Household decision-making
is shown to provide a link between the bargained wage and market opportunities.
Furthermore an increase in the number of insiders, as might be caused by
an increase in employment, is shown to cause, in itself, an increase in
employment and a decrease in unemployment.
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