The Impact of Unionization Structures with Heterogeneous Firms and Rent-Sharing Motives

How are unemployment and output affected if wages are set on the sector level rather than firm level? We take a new look at this question, allowing for heterogeneous firms and rent-sharing motives. Without these motives, employment and output are lower under sector-level wage-setting due to higher wage markups. With rent-sharing motives, however, firm selection is higher under sector-level wage-setting, which tends to increase employment and output, thus counteracting the markup effect. Simulations show that the firm-selection effect decreases the difference between the two unionization structures substantially but it does not change the signs of the effects on output and employment.