Right-to-manage unions, endogenous growth and welfare

Using the basic overlapping generations one-sector model of endogenous growth we show that unionisation of labour markets may be growth-enhancing with respect to the standard competitive equilibrium economy with full employment, provided the capital's weight in technology and the replacement rate are both high enough. Moreover, a growth-maximising value of the union''s relative wage intensity does exist. In particular, a wage-oriented rather than an employment-oriented union should be preferred as an inducement to a higher per capita income growth. Therefore, an appropriate combination of both union''s behaviour and government policies may trigger a virtuous growth mechanism. A policy implication is that the government could follow the union''s growth-maximising rule simply by choosing properly the replacement rate. Moreover, along the balanced growth path, individuals can be better off in a unionised economy with unemployment rather than in the competitive economy with full employment.