‘Investment’ in Union Membership: A Managerial Approach

Abstract

This paper concerns wage formation in a unionized economy when union membership is endogenous and determined by employment. A union is run by a leadership which has as an objective to strengthen the union's position in the labour market. This is achieved by building up membership. Among the results, it is found that since membership is determined by employment, the inclusion of the leadership's preferences into a union's objective function produces lower real wages than a static version would predict. It is also shown that an increase in the union's rate of time preference increases the natural rate of unemployment, while an increase in the speed at which workers enter=leave a union has an opposite effect.