A comment on fair-shares and trade union behaviour
by Trond-Arne Borgersen
International Journal of Economics and Business Research (IJEBR), Vol. 1, No. 2, 2009

Abstract: This article comments on trade union behaviour and the fair-share rule of McDonald and Solow (1981) 'Wage bargaining and employment', American Economic Review, Vol. 71, pp.896–908. A small intertemporal model of union behaviour which shows how the fair-share rule only is valid in long run equilibrium is presented. An intertemporal fair-share rule which coincides with the McDonald and Solow rule in long run equilibrium is instead derived. The intertemporal rule links wages to the permanent value of labour's contribution to output, and ensures capital a return equal to its outside option. The model shows how entrenched union behaviour coincides with the reasoning of implicit contract theory, and provides a possible solution to the enforcement problem of implicit contracts.

Online publication date: Mon, 23-Mar-2009

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