How trade unions increase welfare


  • Corresponding author: Alejandro Donado, Department of Economics, University of Würzburg, Sandering 2, 97070 Würzburg, Germany, Email:

  • We thank numerous seminar (including Louvain-la-Neuve, Heidelberg and Yale) and conference (including conferences of the Royal Economic Society, EEA, EALE and CESifo) participants for lively discussions and comments, especially Raouf Boucekkine, Bill Brainard, Guido Cozzi, Matthias Doepke, Switgard Feuerstein, Michael Kaganovich, Jürgen Meckl, Giuseppe Moscarini, Paul Segerstrom, Hylke Vandenbussche, Fabrizio Zilibotti and an anonymous referee. We are especially indebted to the Co-editor for very constructive comments. This article and the companion article Donado and Wälde (2010a) are extended versions of an earlier version circulated as Donado and Wälde (2008).


Historically, worker movements have played a crucial role in making workplaces safer. Firms traditionally oppose better health standards. According to our interpretation, workplace safety is costly for firms but increases the average health of workers and thereby the aggregate labour supply. A laissez faire approach in which firms set safety standards is suboptimal as workers are not fully informed of health risks associated with jobs. Safety standards set by better informed trade unions are output and welfare increasing.