Employer behavior when workers can unionize

Unionization imposes substantial costs on employers. This paper develops a model that recognizes that, as a result, employers will set wages and employment taking into account the effect of their decisions on workers' incentives to organize. This model of employer behavior allows us to address two questions jointly: What determines which firms become unionized? And what are the consequences of unionization for employment and wages in nonunion firms? The implications of the model depart significantly from those of previous work, which either ignored employers' strategic behavior, or treated these questions in isolation

Threat of unionization and nonunion employment.

If nonunion employers set both wages and employment strategically to forestall unionization, the threat of unionization, despite raising wages, increases employment above competitive levels, in contrast with the prediction of standard models.Threat of unionization; Employment determination;

The economics of union organization : efficiency, information and profitability.

This article presents a game theoretical model of union organization that highlights the role played by efficiency and asymmetric information as determinants of unionization and questions commonly held assumptions about the effect of firm profitability on unionization decisions. In the model, employers set wages taking into account the effect of their choices on workers' incentives to unionize. As a result of employers' strategic wage setting, collective bargaining emerges in equilibrium only if it increases surplus or if there is asymmetric information about the consequences of unionization. While unionization is usually assumed to be more likely in more profitable firms, the model shows that the probability of unionization will be higher in firms with lower rents. It also shows that the union wage premium and unionization will tend to be negatively correlated.Unionization; Asymmetric information; Union efficiency; Profitability;

EMPLOYER BEHAVIOR WHEN WORKERS CAN UNIONIZE

Unionization imposes substantial costs on employers. This paper develops a model that recognizes that, as a result, employers will set wages and employment taking into account the effect of their decisions on workers' incentives to organize. This model of employer behavior allows us to address two questions jointly: What determines which firms become unionized? And what are the consequences of unionization for employment and wages in nonunion firms? The implications of the model depart significantly from those of previous work, which either ignored employers' strategic behavior, or treated these questions in isolation.

WHAT DO UNIONS DO (TO NONUNION WORKERS)?

This paper develops a model of wage and employment determination under the threat of unionization. The model shows that this threat generally leads nonunion firms to pay higher than competitive wages and to set a level of employment equal to or higher than the competitive employment level. This result holds independently of the model used to represent union-management bargaining, as long as it exhibits an intuitively appealing trade-off between wages and employment (monotonicity). The right-to-manage and the Nash-bargaining models are shown to be monotone, so the result extends to the most commonly used models of unionmanagement bargaining.

When cheaper is better: fee determination in the market for equity mutual funds

In this paper, we develop a model of the market for equity mutual funds that captures three key characteristics of this market. First, there is competition among funds. Second, fund managers' ability is not observed by investors before making their investment decisions. And third, some investors do not make optimal use of all available information. The main results of the paper are that 1) price competition is compatible with positive mark-ups in equilibrium; and 2) worse-performing funds set fees that are greater or equal than those set by better-performing funds. These predictions are supported by available empirical evidence

Threat of unionization and nonunion employment

If nonunion employers set both wages and employment strategically to forestall unionization, the threat of unionization, despite raising wages, increases employment above competitive levels, in contrast with the prediction of standard models.Publicad

The economics of union organization : efficiency, information and profitability

This article presents a game theoretical model of union organization that highlights the role played by efficiency and asymmetric information as determinants of unionization and questions commonly held assumptions about the effect of firm profitability on unionization decisions. In the model, employers set wages taking into account the effect of their choices on workers' incentives to unionize. As a result of employers' strategic wage setting, collective bargaining emerges in equilibrium only if it increases surplus or if there is asymmetric information about the consequences of unionization. While unionization is usually assumed to be more likely in more profitable firms, the model shows that the probability of unionization will be higher in firms with lower rents. It also shows that the union wage premium and unionization will tend to be negatively correlated.The financial support of Spain's Ministry of Education and Science (SEJ2005-06655/ECON) is gratefully acknowledged.Publicad

Corporate governance when managers set their own pay

This paper presents a model of the firm in which the manager has discretion over his own compensation, constrained only by the threat of shareholder intervention. The model addresses two questions: How does shareholder power affect managers' compensation and their incentives to maximize firm value? And, which is the optimal level of shareholder power? Increasing shareholder power leads to lower managerial pay, yet it also weakens managers' incentives to maximize value. The model shows that, because of this incentive effect, restricting shareholder power is necessary to obtain financing, and offers predictions about the relation between the optimal level of shareholder power, performance and firm characteristics

When cheaper is better: Fee determination in the market for equity mutual funds.

In this paper, we develop a model of the market for equity mutual funds that captures three key characteristics of this market. First, there is competition among funds. Second, fund managers’ ability is not observed by investors before making their investment decisions. Third, some investors do not make optimal use of all available information. The main results of the paper are that (1) price competition is compatible with positive mark-ups in equilibrium, and (2) worse-performing funds set fees that are greater or equal to those set by better-performing funds. These predictions are supported by available empirical evidence.Mutual fund fees; Mutual fund performance; Product quality; Asymmetric information; Bounded rationality;