Wages, Benefits and Efficiency in Union-Firm Bargaining

This paper provides an efficient union-firm bargaining solution within the right to manage frame-work, by separating efficiency and distributional considerations through bargaining over wage and non-wage benefits. We show that without insurance considerations, efficiency is achieved by equating the wage and workers ’ opportunity cost and providing the union with a surplus share in accordance with its bargaining power. We also show that with insurance considerations, the optimal contract, again, equates the wage and workers ’ opportunity cost, but it also provides full insurance. There is empirical evidence that non-wage benefits are, indeed, common and play an important role in union contracts