Union Power, Minimum Wage Legislation, Endogenous Labor Supplies and Production

Abstract

The objective of this work is to study the impact of the unions bargaining power on production and wages. We present a model where a competitive final good is produced through two substitutable intermediate goods, one produced by unskilled labor and the other by skilled labor. Potential workers decide at their cost to become skilled or unskilled and, thus, labor supplies are determined endogenously. We find that the reallocation of the labor supplies due to changes in the unskilled (or skilled) unions bargaining power may have a positive impact on the final goods production. At the same time, total labor earnings increase with the unskilled unions bargaining power if the final goods production increases too. We also show that the minimum wage legislation has e.ects similar to an increase in the bargaining power of the unskilled unions.skills, labor supplies, minimum wage, union power