Toward A Theory Of The Union Firm

Since Adam Smith economists have been divided on the trade union issue: With Henry Simons and Fritz Machlup, they have denounced union attempts to lower productivity. But with Stuart Mill and, in some cases, Marshall, they have seen unions as having positive influence on the welfare of wage earners, at least when the latter were free to join or not join unions. This debate is still raging today, with Freeman and Medoff (1979) arguing that unions not only tend to improve working conditions but also have a positive effect on the firm’s productivity. Union activity would thus be Pareto-optimal. Other authors, such as Burton (1978), consider trade unions as negative externalities. Lastly, most economists who have dealt with unions look at them as monopolizing the supply of labor to the benefit of workers, or even, as argued by Maloney, McCormick, and Tollison (1979), as a help to producers’ cartels.