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Wage Bargaining, Inventories, and Union Legislation

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  • Coles, Melvyn G
  • Hildreth, Andrew

Abstract

This paper analyses the Rubinstein bargaining game with random alternating offers when the firm has an inventory of finished goods. If the firm can sell out of that inventory during a strike, we show that the negotiated wage is a decreasing function of the inventory stock. Conversely, if the union can form an effective picket line, which blockades firm deliveries during a strike, the negotiated wage is higher and increases with the inventory stock. Noting that the 1980 and 1982 Employment Acts changed unions’ ability to form effective picket lines, the empirical section tests these theoretical predictions using a panel of firms over the period 1972–90. It was found that inventory levels did not have a significant effect on unionised firm wages prior to 1982, but have a significantly negative effect post legislation. For union firms post-legislation, and for non-union firms generally, the wage elasticity with respect to inventories is –0.1. The figures show that the mean union wage differential fell from 2.6% to 0.6% over 1974–81 and 1982–90.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1361.

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Date of creation: Apr 1996
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Handle: RePEc:cpr:ceprdp:1361

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Keywords: Dynamic Bargaining; Wage Determination;

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Cited by:
  1. BACCHIEGA, Emanuele, 2002. "Wage bargaining and vertical differentiation," CORE Discussion Papers 2002076, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Marja-Liisa Halko, 2004. "Buffer funding of unemployment insurance in a dynamic labour union model," Macroeconomics 0404030, EconWPA.
  3. Giulio Fella, 2012. "Matching, Wage Rigidities and Efficient Severance Pay," Working Papers 698, Queen Mary, University of London, School of Economics and Finance.
  4. Chiappori, Pierre-André & Donni, Olivier, 2006. "Learning from a Piece of Pie: The Empirical Content of Nash Bargaining," IZA Discussion Papers 2128, Institute for the Study of Labor (IZA).
  5. Halko, Marja-Liisa, 2003. "Buffer funding of unemployment insurance in a dynamic labour union model," Research Discussion Papers 24/2003, Bank of Finland.
  6. Melvyn G. Coles & Abhinay Muthoo, 2000. "Bargaining equilibrium in a non-stationary environment," Economics Discussion Papers 505, University of Essex, Department of Economics.
  7. 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.
  8. Coles, Melvyn G. & Muthoo, Abhinay, 2003. "Bargaining in a non-stationary environment," Journal of Economic Theory, Elsevier, vol. 109(1), pages 70-89, March.

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