Unionization imposes substantial costs on employers. This paper develops a model that
recognizes that, as a result, employers will set wages and employment taking into account the
effect of their decisions on workers’ incentives to organize. This model of employer behavior
allows us to address two questions jointly: What determines which firms become unionized?
And what are the consequences of unionization for employment and wages in nonunion firms?
The implications of the model depart significantly from those of previous work, which either
ignored employers’ strategic behavior, or treated these questions in isolation.