Entry and Unemployment in a Union-Oligopoly Model
Abstract
It is commonly acknowledged that a larger number of trade unions is associated with a
higher level of employment. We demonstrate that this belief can be wrong, i.e. that the
entry of trade unions can increase the number of unemployed workers. This result is
stated in a multi-sector economy in which Cournotian trade unions incur no cost and
have a nominal objective function. It is obtained when the labour demand function is
sufficiently convex such that the trade-unions' actions become strong strategic
complements. In addition, we show that this counterintuitive result is consistent with a
wide range of parameter values under a CES technology.