Employer Behavior when Workers Can Unionize

Unionization imposes substantial costs on employers. This paper develops a model that recognizes that, as a result, employers will set wages and employment taking into account the effect of their decisions on workers' incentives to organize. This model of employer behavior allows us to address two questions jointly: What determines which firms become unionized? And what are the consequences of unionization for employment and wages in nonunion firms? The implications of the model depart significantly from those of previous work, which either ignored employers' strategic behavior, or treated these questions in isolation