Growth and Employment Effects of Unions in a Simple Endogenous Growth Model

In this paper we analyse the effects of simultaneous union wage bargaining in a simple two sector growth model. We show that the overall employment effect of unionisation is ambiguous and depends on the relative sectoral wage. Besides the employment effects we analyse how unionisation changes the rate of growth. It is shown that both research sector unionisation and intermediate sector unionisation lower the rate of growth, although the effect of research sector unionisation is more fierce. Moreover we analyse the impact of parameter changes on the growth differential, i.e. the rate of growth in the competitive case over the rate in the unionised case. We can show that whether various parameter changes narrow or widen the growth differential crucially hinges on the wage differential in the unionised case.