Privatisation or State Ownership When Labour Market is Unionised?

This paper analyses the choice of the bargaining agenda in a public/private unionised monopoly, and investigates whether the traditional higher efficiency of the state ownership of a monopoly holds when the labour market is unionised. First, we find that both a private and public monopoly always adopts a Right-to-Manage agenda. Second, a public firm pays a higher wage. Third, we show that privatisation could ensure a higher social welfare. This rather unexpected result may emerge provided that the Government has a high evaluation of the workers’ welfare, and the union is strong and/or wage aggressive. Therefore, our results suggest that privatisation 1) should be socially preferred depending only on the strength and wage aggressiveness of unions, and 2) rather paradoxically, is preferred when the Government is more careful about workers’ welfare. Our results may have policy implications especially in the post-communist countries, where the debate on privatisation is ubiquitously high and, differently between various countries, Government and unions may oscillate between left- or right-wing, and strength or weakness, respectively.