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Unions: Rent Creators or Extractors? *
Author(s) -
Skovsgaard Aidt Toke,
Sena Vania
Publication year - 2005
Publication title -
scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/j.1467-9442.2005.00397.x
Subject(s) - deregulation , subsidy , agency (philosophy) , economics , competition (biology) , productivity , product market , economic rent , rent seeking , product (mathematics) , labour economics , microeconomics , industrial organization , market economy , incentive , politics , macroeconomics , law , sociology , ecology , social science , geometry , mathematics , political science , biology
This paper proposes a model of workplace‐specific unions that integrates two views of what unions do. One view holds that unions mainly engage in rent extraction. Another view holds that unions mainly engage in rent creation by providing agency services that increase workplace productivity. We demonstrate that the choice between the two activities is systematically related to the economic and regulatory environment in which the union operates. Product market competition encourages rent creation, while labor market deregulation encourages rent extraction. Moreover, we provide a rationale for why firms may want to subsidize unions.