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Counter intuitive results in a simple model of wage negotiations

Author

Listed:
  • Harold Houba

    (Department of Econometrics, Free University, De Boelelaan 1105, 1081 HV Amsterdam, THE NETHERLANDS)

  • Gijsbert van Lomwel

    (CentER, Tilburg University, P.O. Box 90153, 5000 LE Tilburg, THE NETHERLANDS)

Abstract

Short-term contracts and exogenous productivity growth are introduced in a simple wage bargaining model. The equilibrium utilities corresponding to militant union behaviour are independent of the contract length. Necessary and sufficient conditions for monotonic convergence to a unique steady state are derived. Otherwise, cyclic behaviour of wage shares is inevitable. A wage decrease can occur if strike is credible, but never when strike is not credible. In the limit, as time between bargaining rounds vanishes, this paradox survives.

Suggested Citation

  • Harold Houba & Gijsbert van Lomwel, 2001. "Counter intuitive results in a simple model of wage negotiations," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 17(1), pages 81-99.
    • Handle: RePEc:spr:joecth:v:17:y:2001:i:1:p:81-99
    Note: Received: September 3, 1998; revised version: February 10, 2000
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    Cited by:

    1. is not listed on IDEAS
    2. Harold Houba & Quan Wen, 2008. "On striking for a bargain between two completely informed agents," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 37(3), pages 509-519, December.

    More about this item

    Keywords

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    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General

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