In the public debate over unions, union opponents typically assume that unions a

Question

In the public debate over unions, union opponents typically assume that unions and firms negotiate in a right-to-manage framework rather than an efficient contracting framework. Explain the social welfare case against unions who negotiate in a right to manage environment, ie. the costs they impose on the economy in terms of allocative inefficiency and/or inequality. (You can use graphical analysis if it helps you, but not necessary). Why is the social welfare case against unions weaker if unions and firms typically negotiate through efficient contracting?

Explanation / Answer

Unions usually decrease the allocative efficiency of the economy. Labour wages are negotiated at higher price as compared to market forces and the employment adjusts to the decided wage level, not the natural rate.

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