Layoffs with Payoffs: A Bargaining Model of Union Wage and Severance Pay Determination
AbstractPopular characterizations of union preferences assume that the income of laid-off union members is exogenous. There is evidence, however, of intra-union distribution schemes such as severance payments, unemployment insurance, retraining arrangements and early retirement schemes. This paper develops a model of wage and severance pay determination by a trade union and a firm bargaining in a right-to-manage framework. The important point differentiating the model in this paper from the orthodox union model is that it is efficiency-improving in the sense that it makes full-insurance possible and marginal productivity is equal to the opportunity cost of labour. Moreover, with redundancy pay on the bargaining agenda, both the right-to-manage and the efficient bargaining union models are characterized by the same efficiency conditions. This has implications for empirical research which attempts to distinguish between these two models, since the outcome of both models is the same. Finally, the union-firm bargaining model can also be compared with the outcome of the implicit contract model with redundancy pay. There is an important difference between the two approaches, however. While the result in this paper derives from an imperfectly competitive labour market where unions and firms bargain over wages and redundancy pay, the implicit contract result derives from a perfectly competitive labour market in which competitive forces lead to an efficient outcome.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 843.
Date of creation: Nov 1993
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- Booth, Alison L, 1995. "Layoffs with Payoffs: A Bargaining Model of Union Wage and Severance Pay Determination," Economica, London School of Economics and Political Science, vol. 62(248), pages 551-64, November.
- J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
- J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
- J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
- J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
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- Elie Appelbaum, 2008. "Wages, Fringe Benefits and Efficiency in Union-Firm Bargaining," Working Papers 2008_04, York University, Department of Economics.
- Appelbaum, Elie, 2011. "Union-firm bargaining: Order of play and efficiency," Games and Economic Behavior, Elsevier, vol. 71(2), pages 235-245, March.
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- Elie Appelbaum, 2009. "Alternating Offers Union-Firm Bargaining: Order of Play and Efficiency," Working Papers 2009_02, York University, Department of Economics.
- Christian Grund, 2004. "Severance Payments for Dismissed Employees Severance Payments for Dismissed Employees in Germany," Bonn Econ Discussion Papers bgse4_2004, University of Bonn, Germany.
- Pilar GarcÃa-MartÃnez & Miguel Malo, 2007. "The strategic use of dismissal legislation: an empirical analysis using Spanish data," European Journal of Law and Economics, Springer, vol. 23(2), pages 151-167, April.
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