MARKET-STRUCTURE AND THE DEMAND FOR UNIONIZED LABOR

This paper builds from the work on input pricing to demonstrate that in a very wide variety of cases the elasticity of derived demand for labor is completely invariant to product market structure. In addition, the specific conditions sufficient for this invariance to hold true are identified. Such a demonstration is important for discriminating between models of union behavior which assume bargaining along the labor demand curve and models which assume bargaining off the demand curve. First, demand curve models predict that wages will depend crucially on the elasticity of labor demand. Second, measures of industrial concentration are usually significant in wage equations, a result thought in harmony with the elasticity emphasis of demand curve models. But, third, as will be shown, market structure will typically not affect the labor demand elasticity. This suggests that the conventional interpretation of the second point is wrong, the casts doubt on the explanatory power of demand curve models in general. -from Author