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The Incentives to Make Commitments in Wage Bargains

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  • Alistair Ulph

Abstract

It is commonly believed that a workforce of identical workers will be better off organised in a single union rather than separate unions that bargain independently with an employer, for this will prevent the employer playing off one union against another. In this paper I show that there are circumstances where this need not be the case. If it is impossible for the firm and workers to sign long-term binding contracts on wages and employment, then the firm will wish to invest in a capital stock below the efficient level; by organising in separate unions the firm will be induced to raise its level of investment, to ensure it has enough capacity with each union to make a threat to switch production to another union credible. The effect on workers' payoffs from a higher capital stock can outweigh the loss of bargaining power as a result of the workforce being in separate unions. There will also be circumstances where the firm will invest in a capital stock that exceeds the efficient level.

Suggested Citation

  • Alistair Ulph, 1989. "The Incentives to Make Commitments in Wage Bargains," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 56(3), pages 449-465.
    • Handle: RePEc:oup:restud:v:56:y:1989:i:3:p:449-465.
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    File URL: http://hdl.handle.net/10.2307/2297558
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    Cited by:

    1. Arijit Mukherjee & Kullapat Suetrong, 2007. "Unionisation structure and strategic foreign direct investment," Discussion Papers 07/22, University of Nottingham, GEP.
    2. Mukherjee, Arijit & Pennings, Enrico, 2011. "Unionization structure, licensing and innovation," International Journal of Industrial Organization, Elsevier, vol. 29(2), pages 232-241, March.
    3. Debasmita Basak & Andreas Hoefele & Arijit Mukherjee, 2014. "Union Bargaining Power and Product Innovation: Relevance of the Preference Function," CESifo Working Paper Series 5007, CESifo.
    4. Gaston, N., 2000. "Unions and the Decentralisation of Collective Bargaining in a Globalising World," ISER Discussion Paper 0495, Institute of Social and Economic Research, Osaka University.

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