Unlike implicit contracts models, the nonuniform pricing model of unions assumes that firms can always shut down ex post to avoid any payments to the union. Under this restriction, employment can differ from a first-best even if both workers and firms are risk neutral. In general, the union chooses to offer quantity discounts on labor and needs to use a seniority rule that regulates the order in which workers are hired to implement these discounts. Unions lower (almost) all workers' employment probabilities and increase the cyclical volatility of employment, and the union-nonunion average wage differential will move countercyclically. Workers' preferences over union wage profiles, conditional on their seniority, exhibit (within limits) a convenient "unanimity" property.

Unions are introduced into a general equilibrium model of firm formation. I find, under reasonable conditions, that large firms are more likely to be unionized, and that unionized firms are more productive and "better managed" than nonunion firms of the same size. As well, unions reduce economic efficiency by distorting the "occupation choice" decision between managing a firm and working in one. Perhaps surprisingly, this distortion persists even when individual union contracts set both wages and employment in a fully efficient manner but can disappear when the mechanism that allocates property rights to union jobs is changed in certain ways.

Unlike implicit contracts models, the nonuniform pricing model of unions assumes that firms can always shut down ex post to avoid any payments to the union. Under this restriction, employment can differ from a first-best even if both workers and firms are risk neutral. In general, the union chooses to offer quantity discounts on labor and needs to use a seniority rule that regulates the order in which workers are hired to implement these discounts. Unions lower (almost) all workers' employment probabilities and increase the cyclical volatility of employment, and the union-nonunion average wage differential will move countercyclically. Workers' preferences over union wage profiles, conditional on their seniority, exhibit (within limits) a convenient "unanimity" property.