Training and Product Quality in Unionized Oligopolies

Abstract

In this paper we analyze the private and public incentives towards skill acquisition when the skill level of workers determines the quality level of goods, and both labor and product markets are non competitive. We delve into the mechanisms that determine the equilibrium skill acquisition outcomes and show that both "pure" (training set by either firms or unions only) and "mixed" (training set by firms and unions) training scenarios may emerge at equilibrium. We show that firms have generally greater training incentives than unions, resulting in a higher product quality. In line with empirical evidence, we also find that the wage differential between high-skill workers and low-skill workers is lower when the training levels of the workforce are selected by unions than by firms. Finally, we analyze the optimal public training skill levels and demonstrate that both unions and firms under-invest in training in comparison with the social optimum. Yet, in this case the skill premium is the lowest.

From boycott to buycott: is activism from the North good for the South?

“…We endogenize wages (w 1 , w 2 ) in a manner that incorporates two competing perspectives: that of workers and unions seeking to increase their total wages and that of managers seeking to increase their profits. Following Dunlop (1944), Sørensen (1992), Bacchiega (2013) and Bacchiega and Minniti (2015), we take total wages V i (w 1 , w 2 )…”

“…In our model, southern welfare is the sum of the southern firm's profit and workers' wages seen as an expression of southern workers' utility (Lopez and Naylor, 2002;Straume, 2002;Bacchiega and Minniti, 2015). The expression of southern welfare is defined as follows, with τ = p, w, q, which respectively correspond to the price, wage and quality equilibria, redefined as a short, medium and long term approach…”

Quality competition and worker training

“…Recognizing such quality‐sensitive consumers, improving product quality may be a tool to seize a competitive advantage. In this view, quality‐differentiated outputs depend critically on quality‐differentiated inputs (Bacchiega & Minniti, 2015). There is “a quality transfer from input to output.” Such a view resonates with a long line of work focusing on factor endowments as drivers of final product quality (Schott, 2004) and firm‐level evidence that product quality correlates with the quality of both labor and non‐labor inputs (Kugler & Verhoogen, 2012).…”

“…1 Recognizing such quality-sensitive consumers, improving product quality may be a tool to seize a competitive advantage. In this view, quality-differentiated outputs depend critically on quality-differentiated inputs (Bacchiega & Minniti, 2015). There is "a quality transfer from input to output."…”

“…Gabszewicz and Turrini (2000) is an exception, but here worker skill is presumed to be exogenous even as it improves product quality. To our knowledge, only Bacchiega and Minniti (2015) address skill acquisition. They do so in a (somewhat restricted) unionized duopoly setting where worker skill determines product quality, firm revenues, and labor remuneration.…”