Subsidising Education with Unionised Labour Markets

It is well known from the literature that a unionisation of labour
markets leads to an increase in wages and a decrease in employment.
However, in these models human capital formation is usually taken
as given. This paper internalises the education decision and shows
that a unionisation of the labour market for unskilled workers will
also lead to an inefficiently low education level. We discuss the
effects of an education subsidy. It will turn out that both the way
of financing and the reaction of the trade union to tax rate
changes are crucial for the employment and welfare effects.