Union bargaining power, relative wages, and efficiency in Canada

We use a computable general equilibrium model incorporating trade unions, e fficient Nash contracts, existing distortions, and international trade to m easure the deadweight loss in Canada arising from the ability of unions to raise wages above competitive levels. The model incorporates two features n ew to CGE analysis: parameterization of union bargaining power and variatio ns in union preferences. Estimates indicate the deadweight loss to be no mo re than 0.04 per cent of GNP. However, the small aggregate effect masks con siderable adjustments at the industry level, in imports and exports, and in the distribution of income. Adjustments are also larger with employment-or iented unions.