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The Incentives to Make Commitments in Wage Bargains

  • Ulph, Alistair
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    It is commonly believed that a workforce of identical workers will be better-off organized 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, the author shows 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 organizing 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. Copyright 1989 by The Review of Economic Studies Limited.

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    Article provided by Wiley Blackwell in its journal Review of Economic Studies.

    Volume (Year): 56 (1989)
    Issue (Month): 3 (July)
    Pages: 449-65

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    Handle: RePEc:bla:restud:v:56:y:1989:i:3:p:449-65
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