Trade Unions and Firms' Product Market Power

A production function model with efficient bargaining between oligopolistic firms and unions is developed to distinguish between product market power and union power in capturing economic rents. The model is formalised using the generalized Nash bargaining solution, and is empirically tested on four Belgian manufacturing sectors. The conclusions are that product market power is significantly eroded by wage rents, but firms retain most of their power during negotiations. Also, the restrictions imposed on the data do not reject the hypothesis that wage erosion arises from efficient bargaining, in accordance with other empirical findings for Belgian manufacturing.