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Counter Intuitive Results in a Simple Model of Wage Negotiations

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  • Harold Houba

    ()
    (Vrije Universiteit Amsterdam)

  • Gijsbert van Lomwel

    (CentER, Tilburg University)

Abstract

Short-term contracts and exogenous productivity growth are introduced in asimple wage bargaining model. The equilibrium utilities corresponding tomilitant union behaviour are independent of the contract length. The wagedynamics are linear if strike is credible (low wage shares) and nonlinearotherwise (high wage shares). The model can admit two steady state wageshares. The one under strike is not credible exceeds the one under strikeis credible. A wage decrease can occur if strike is credible, but neverwhen strike is not credible. In the limit as time between bargaining roundsvanishes only the first paradox survives.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 98-115/3.

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Date of creation: 21 Oct 1998
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Handle: RePEc:dgr:uvatin:19980115

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Web page: http://www.tinbergen.nl

Related research

Keywords: wage bargaining; wage dynamics; chaos; strike;

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  1. Bolt, Wilko, 1995. "Striking for a Bargain between Two Completely Informed Agents: Comment," American Economic Review, American Economic Association, vol. 85(5), pages 1344-47, December.
  2. Holden, Steinar, 1997. "Wage Bargaining, Holdout, and Inflation," Oxford Economic Papers, Oxford University Press, vol. 49(2), pages 235-55, April.
  3. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
  4. Fernandez, Raquel & Glazer, Jacob, 1991. "Striking for a Bargain between Two Completely Informed Agents," American Economic Review, American Economic Association, vol. 81(1), pages 240-52, March.
  5. Haller, Hans & Holden, Steinar, 1990. "A letter to the editor on wage bargaining," Journal of Economic Theory, Elsevier, vol. 52(1), pages 232-236, October.
  6. Moene, Karl O, 1988. "Unions' Threats and Wage Determination," Economic Journal, Royal Economic Society, vol. 98(391), pages 471-83, June.
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Cited by:
  1. Harold Houba & Quan Wen, 2008. "On striking for a bargain between two completely informed agents," Economic Theory, Springer, vol. 37(3), pages 509-519, December.

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