Introduction

We have documented, in chapter 1, the rich variety in the mode of transacting of the different national labour markets. We have argued in chapter 2 that delegating the task of adjusting employment contracts for non-idiosyncratic shocks can benefit the contracting partners. It is now time to be more specific about labour unions. They play a vital role in the labour market. Their position is different in corporatist and in non corporatist structures, both in their organizational structure and in their behaviour. In this chapter we will survey the union models that have been developed in the literature. We will discuss the canonical models that have by now become standard textbook cases. We should point out right away that these standard models are static, and take capital for granted. Thus, they ignore the hold-up problem that we stressed in chapter 2. We will also consider the effect of unionization on tenure profiles. The latter models are less prominent, but they deserve attention as the empirical evidence in chapter 1 suggests that corporatism makes a large difference for the steepness of tenure profiles. In addition, we draw from the scarce literature on union structure to analyse a potential relation with corporatism. Throughout the chapter we will have a special interest in rentsharing behaviour and in the virtues of having a nominal contract.

The canonical models for a unionized labour market

There are two canonical models for markets where labour unions bargain with management over the labour contract.