Some Evidence on the Membership Hysteresis Hypothesis in Europe.

In a democratic model of union wage-setting, monopoly unions can induce hysteresis in the behavior of employment, at least locally. As a result, autoregressive representations of employment and membership should contain a unit root even if the determinants of labor demand are stationary. In addition, the model predicts that employment should Granger-cause consumption wages. These implications are tested with data from several European countries. Although there is little conclusive evidence that employment hysteresis constitutes the key difference between the European and U.S. experiences, trade union membership data from the Federal Republic of Germany provides strong support for the membership hysteresis hypothesis in this country.