Modern macroeconomic theorists have come around to a belief that labor markets, like the product markets, are best represented by the assumption of imperfect competition1.

8.1 Wage setting models There are two kinds of imperfectly competitive models of the labor market. One model, based on the dynamics of wage setting under trade unions, emphasizes collective bargaining power. Another model, based on efficiency wage models of the firm, emphasizes that individual workers have bargaining power. Both kinds of model lead to the same substantive conclusion: the bargained wage will tend to be higher at higher levels of output (lower unemployment rates).