UNION BARGAINING POWER, EMPLOYMENT, AND OUTPUT IN A MODEL OF MONOPOLISTIC COMPETITION WITH WAGE BARGAINING

This paper examines the implications of a rise in the bargaining power of workers on the real wage, income distribution, and the levels of e mployment and output using a macroeconomic model with monopolistic com petition and worker-owner Nash bargaining at the firm level. It thereb y provides optimizing microfoundations to Kalecki's macroeconomic anal ysis of the positive effect on output of a rise in trade-union power, and contrasts it with the neoclassical view based on the diminishing m arginal productivity of labor.