Template-Type: ReDIF-Paper 1.0
Author-Name: John Roemer
Author-Name-First: John
Author-Name-Last: Roemer
Author-Workplace-Name: Department of Economics, University of California Davis
Title: TRADE UNIONS AND TRANSFER PAYMENTS: WHEN ARE THEY REASONS TO PREFER DEMOCRACY TO DICTATORSHIP?
Abstract: Under dictatorship, trade unions and strikes are illegal, and so wages are low and employment is full. Under democracy, there are two institutional innovations: trade unions, which can keep the wage about the Walrasian level, and the citizen franchise, by which citizens may vote transfer payments to the unemployed. I model the dictatorial equilibrium as Walrasian, and the democratic equilibrium as the Nash equilibrium of a game played between voters and union members--more formally, between the median voter and the median worker. These two individuals are different, because the polity consists of workers and asset-holders--the latter vote, but supply capital rather than labor.
 In the move from dictatorship to democracy, the worker exchanges the sure-thing of a low wage to a lottery between a higher wage (if employed) and a transfer payment (if unemployed). Workers are differentiated according to their skill. I calculate the size of the coalition of workers that favors the democratic equilibrium over the dictatorial equilibrium, as a parameter of economic development increases. For a class of CES production functions, it is indeed the case that the democracy-favoring coalition grows with economic development. This is not true, however, for the Cobb-Douglas production function.
Length: 0
File-URL: https://repec.dss.ucdavis.edu/files/GC9RUmqH8LM5ZkMCaiZTCAJW/97-25.pdf
File-Format: application/pdf
Number: 190
Classification-JEL: 
KeyWords: 
Creation-Date: 20030108
Handle: RePEc:cda:wpaper:190