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Wage Bargaining, Inventories, and Union Legislation

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  • Coles, Melvyn G
  • Hildreth, Andrew K G

Abstract

This paper analyses a strategic bargaining game where the firm may or may not be able to sell out of its inventory of finished goods during a strike. Firms and the union are both risk neutral and have the same discount rate. It is shown that the wage equilibrium corresponds to the axiomatic Nash bargaining solution where the threat points are the agents' payoffs should bargaining continue indefinitely. We use the 1980 and 1982 Employment Acts to test this theory, interpreting that legislation change as changing the firm's threat point but not its bargaining power. This allows us to identify the value of the firm's threat point post-1982. Formal tests support the theory. Also consistent with the theory, it is found that union wages decrease with inventories after 1982, but not before, and that the union wage gap is smaller after 1982. Copyright 2000 by The Review of Economic Studies Limited

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of Economic Studies.

Volume (Year): 67 (2000)
Issue (Month): 2 (April)
Pages: 273-93

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Handle: RePEc:bla:restud:v:67:y:2000:i:2:p:273-93

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0034-6527

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Cited by:
  1. Pierre-André Chiappori & Olivier Donni, 2005. "Learning From a Piece of Pie: The Empirical Content of Nash Bargaining," THEMA Working Papers 2006-07, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  2. Melvyn Coles & Adrian Masters, 2006. "Optimal Unemployment Insurance in a Matching Equilibrium," Journal of Labor Economics, University of Chicago Press, vol. 24(1), pages 109-138, January.
  3. Marja-Liisa Halko, 2004. "Buffer funding of unemployment insurance in a dynamic labour union model," Macroeconomics 0404030, EconWPA.
  4. Melvyn G. Coles & Abhinay Muthoo, 2000. "Bargaining equilibrium in a non-stationary environment," Economics Discussion Papers 505, University of Essex, Department of Economics.
  5. Fella Giulio, 2012. "Matching, Wage Rigidities and Efficient Severance Pay," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-35, December.
  6. Coles, Melvyn G. & Muthoo, Abhinay, 2003. "Bargaining in a non-stationary environment," Journal of Economic Theory, Elsevier, vol. 109(1), pages 70-89, March.
  7. BACCHIEGA, Emanuele, 2002. "Wage bargaining and vertical differentiation," CORE Discussion Papers 2002076, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. Halko, Marja-Liisa, 2003. "Buffer funding of unemployment insurance in a dynamic labour union model," Research Discussion Papers 24/2003, Bank of Finland.

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