Abstract

In this paper the Trade Union is described as an organisation where workers delegate authority to a leader in order to save on co-ordination costs. These co-ordination costs are due to the difficulties of reaching an agreement among workers and to contracts incompleteness. In particular, we study how different delegation arrangements affect the outcome of wage bargaining. We show that workers may benefit from delegating the authority on wage bargaining to a professional Union leader, who does not need to bear directly the costs of industrial actions. Delegation allows the workers to make the threat of using the most effective industrial actions credible, even though those industrial actions are the most costly for the workers themselves. In particular, we consider the choice between going on strike and working to rule. If working to rule is much less effective in damaging the firm and less costly for the workers than going on strike, a Union led by a professional will use going on strike as a credible threat. Both the equilibrium wage and the number of employed workers will be higher with the delegation of authority to a professional leader than in the case when workers bargain directly with the firm and the credible threat is working to rule. Our analysis has important implications for the debate on the degree of democracy within the Trade Union. It shows that there is a trade-off between the effectiveness of the Union in bargaining and its members' direct participation to the decisional process.