Towards a Hierarchical Approach to Trade Union Behaviour

The main starting point of this paper is the idea that trade unions do not only care about real wage level but also about a reference or aspiration wage level. After citing a number of empirical works, the paper argues that the attainment of the reference wage is a priority for the union. This implies that there is a hierarchical character in union objectives. A two-step union utility function is suggested in order to capture the change in priority once the prime objective (the reference wage level) was reached. The analysis is conducted in an efficient bargain framework, and shows that employment-wage combinations come into the picture only when the reference wage is reached. In a unionized economy, this implies that substantial increases in employment will take place only after the union reference wage has been met.