Wages and employment in a repeated game with revenue fluctuations
This paper analyses wages and employment in a repeated game between a union and a firm. The parties cannot enter a binding contract, and revenue is fluctuating. It is shown that if discount factors are moderate, then the best sequence of wage rates and employments sustainable in a subgame perfect equilibrium and sharing the surplus in fixed proportions, has a more counter cyclical wage rate than the one sharing the surplus in the same proportions in each period. This result holds true whether the revenue shocks are i.i.d. or follows a Markov process with persistence.
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- Julio J. Rotemberg & Michael Woodford, 1989.
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Department of Economics, Working Paper Series
qt9wv3h5jb, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
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- Rotemberg, Julio J & Saloner, Garth, 1986. "A Supergame-Theoretic Model of Price Wars during Booms," American Economic Review, American Economic Association, vol. 76(3), pages 390-407, June.
- Maria Paz Espinosa & Changyong Rhee, 1989. "Efficient Wage Bargaining as a Repeated Game," The Quarterly Journal of Economics, Oxford University Press, vol. 104(3), pages 565-588.
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