This paper studies how different unionisation structures affect firm productivity, firm performance, and consumer welfare in a monopolistic competition model with heterogeneous firms and free entry. While centralised bargaining induces tougher selection among hetero- geneous producers and thus increases average productivity, firm-level bargaining allows less productive entrants to remain in the market. Centralised bargaining also results in higher average output and profit levels than either decentralised bargaining or a competitive labour market. From a welfare perspective, the choice between centralised and decentralised bar- gaining involves a potential trade-off between product variety and product prices. Extending the model to a two-country setup, I furthermore show that the positive effect of centralised bargaining on average productivity can be overturned when firms face international low-wage competition.
Trade Unions Productivity Firm Performance International Competition