Trade unions and automation: A theoretical approach

Automation has had a profound impact on the economy, which has led to it being a widely discussed topic not only in economics over the past few years. However, the pertinent literature on the possible interplay between trade unions and automation is still relatively meager. Therefore, this article strives to contribute to the body of literature by analyzing theoretical effects of automation on the decision-making of trade unions. For this purpose, a model of the firm and a trade union akin to van der Ploeg (1987) is constructed. The firm employs capital, labor, and automatable capital, which is assumed to be a perfect substitute for labor. The trade union maximizes its utility by choosing an optimal amount of labor employed by the firm with the wage being determined by the demand for labor. By means of optimal control, we show that the employment of automatable capital can have an adverse effect on the optimal amount of labor.