Trade Unions, Employee Share Ownership and Wage Setting : A Supply-Side Approach to the Share Economy

Employee share ownership is growing increasingly important. This paper studies employee share ownership in an economy with one monopoly union for each firm. We modify an implicit contract model by adding dividend income to the usual wage income. Union members differ in exogenous stock endowments and choose wages under majority rule. As a result, wages are decreasing in stock endowments, and a skewed distribution of stock-capital leads to higher wages and lower employment. Switching to a more equal distribution can increase employment and production. An optimal portfolio rule suggests that macroeconomic gains can be made from limiting the diversification of portfolios. Last, we show how the transfer of shares to employees can be made economically feasible