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Strikes as the 'Tip of the Iceberg' in a Theory of Firm-Union Cooperation

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  • Gary-Bobo, Robert J.
  • Jaaidane, Touria

Abstract

We model cooperation between an employer and a workers' union as an equilibrium in an infinitely repeated game with discounting and imperfect monitoring. The employer has private information about firm profitability. The model explains the incidence and duration of strikes, as well as the employer's outsourcing (or partial lock-out) decisions. By means of an effort variable, it also extends the theory to account for worker resistance phenomena, taking the form of low effort on the part of employees. Strikes appear as random equilibrium phenomena, during finite-duration, but recurrent phases of play, triggered by the occurrence of a low-profitability state. We show that high-effort and high-pay cooperative agreements between the union and the employer can be supported as perfect public equilibria of the repeated game, if players are patient enough, but only at the cost of random reversions to noncooperative equilibrium in which strikes, low effort, low pay, and outsourcing take place.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6644.

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Date of creation: Jan 2008
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Handle: RePEc:cpr:ceprdp:6644

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Related research

Keywords: Imperfect Monitoring; Industrial Relations; Mechanism Design; Public Employment; Repeated Games; Theory of Strikes;

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  1. W. Bentley MacLeod & James M. Malcomson, 1986. "Implicit Contracts, Incentive Compatibility, and Involuntary Unemployment," Working Papers 585, Queen's University, Department of Economics.
  2. MALCOMSON, James M. & SPINNEWYN, Frans, . "The multiperiod principal-agent problem," CORE Discussion Papers RP -803, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Susan Athey & Kyle Bagwell, 1999. "Optimal Collusion with Private Information," Working papers 99-17, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. Peter Cramton & Joseph S. Tracy, 1992. "Strikes and Holdouts in Wage Bargaining: Theory and Data," Papers of Peter Cramton 92aer, University of Maryland, Department of Economics - Peter Cramton, revised 09 Jun 1998.
  5. Lawrence M. Ausubel & Peter Cramton & Raymond J. Deneckere, 2002. "Bargaining with Incomplete Information," Papers of Peter Cramton 02barg, University of Maryland, Department of Economics - Peter Cramton, revised 12 Mar 2001.
  6. MacLeod, W.B. & Malcomson, J.M., 1997. "Motivation and markets," Discussion Paper Series In Economics And Econometrics 9720, Economics Division, School of Social Sciences, University of Southampton.
  7. Kennan, John & Wilson, Robert, 1989. "Strategic Bargaining Models and Interpretation of Strike Data," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 4(S), pages S87-130, Supplemen.
  8. Green, Edward J & Porter, Robert H, 1984. "Noncooperative Collusion under Imperfect Price Information," Econometrica, Econometric Society, vol. 52(1), pages 87-100, January.
  9. Card, David, 1990. "Strikes and Bargaining: A Survey of the Recent Empirical Literature," American Economic Review, American Economic Association, vol. 80(2), pages 410-15, May.
  10. Drew Fudenberg & David K. Levine & Eric Maskin, 1994. "The Folk Theorem with Imperfect Public Information," Levine's Working Paper Archive 394, David K. Levine.
  11. Card, David, 1990. "Strikes and Wages: A Test of an Asymmetric Information Model," The Quarterly Journal of Economics, MIT Press, vol. 105(3), pages 625-59, August.
  12. Hayes, Beth, 1984. "Unions and Strikes with Asymmetric Information," Journal of Labor Economics, University of Chicago Press, vol. 2(1), pages 57-83, January.
  13. Kennan, John & Wilson, Robert, 1993. "Bargaining with Private Information," Journal of Economic Literature, American Economic Association, vol. 31(1), pages 45-104, March.
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