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Unions: Rent Creators or Extractors?

Toke Skovsgaard Aidt and Vania Sena
The Scandinavian Journal of Economics
Vol. 107, No. 1 (Mar., 2005), pp. 103-121
Published by: Wiley on behalf of The Scandinavian Journal of Economics
Stable URL: http://www.jstor.org/stable/3441094
Page Count: 19
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Unions: Rent Creators or Extractors?
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Abstract

This paper proposes a model of workplace-specific unions that integrates two views of what unions do. One view holds that unions mainly engage in rent extraction. Another view holds that unions mainly engage in rent creation by providing agency services that increase work-place productivity. We demonstrate that the choice between the two activities is systematically related to the economic and regulatory environment in which the union operates. Product market competition encourages rent creation, while labor market deregulation encourages rent extraction. Moreover, we provide a rationale for why firms may want to subsidize unions.

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