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Wage Bargaining with Time-Varying Threats


  • Cramton, Peter C
  • Tracy, Joseph S


The authors study wage bargaining in which the union is uncertain about the firm's willingness to pay and threat payoffs vary over time. Strike payoffs change as replacement workers are hired, as strikers find temporary jobs, and as inventories or strike funds run out. The authors find that bargaining outcomes are substantially altered if threat payoffs vary. If dispute costs increase in the long run, then dispute durations are longer, settlement rates are lower, and wages decline more slowly during the short run (and may even increase). The settlement wage is largely determined from the long-run threat, rather than the short-run threat. Copyright 1994 by University of Chicago Press.

Suggested Citation

  • Cramton, Peter C & Tracy, Joseph S, 1994. "Wage Bargaining with Time-Varying Threats," Journal of Labor Economics, University of Chicago Press, vol. 12(4), pages 594-617, October.
  • Handle: RePEc:ucp:jlabec:v:12:y:1994:i:4:p:594-617

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    References listed on IDEAS

    1. Vroman, Susan B, 1989. "A Longitudinal Analysis of Strike Activity in U.S. Manufacturing: 1957-1984," American Economic Review, American Economic Association, vol. 79(4), pages 816-826, September.
    2. Alan S. Blinder & Louis J. Maccini, 1991. "Taking Stock: A Critical Assessment of Recent Research on Inventories," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 73-96, Winter.
    3. repec:ilo:ilowps:265729 is not listed on IDEAS
    4. Harrison, Alan & Stewart, Mark, 1989. "Cyclical Fluctuations in Strike Durations," American Economic Review, American Economic Association, vol. 79(4), pages 827-841, September.
    5. Gunderson, Morley & Kervin, John & Reid, Frank, 1986. "Logit Estimates of Strike Incidence from Canadian Contract Data," Journal of Labor Economics, University of Chicago Press, vol. 4(2), pages 257-276, April.
    6. Saith A., 1989. "Development strategies and the rural poor," ILO Working Papers 992657293402676, International Labour Organization.
    7. David Card, 1988. "Strikes and Wages: A Test of a Signalling Model," NBER Working Papers 2550, National Bureau of Economic Research, Inc.
    8. McConnell, Sheena, 1989. "Strikes, Wages, and Private Information," American Economic Review, American Economic Association, vol. 79(4), pages 801-815, September.
    9. Peter C. Cramton, 1992. "Strategic Delay in Bargaining with Two-Sided Uncertainty," Review of Economic Studies, Oxford University Press, vol. 59(1), pages 205-225.
    10. Fernandez, Raquel & Glazer, Jacob, 1991. "Striking for a Bargain between Two Completely Informed Agents," American Economic Review, American Economic Association, vol. 81(1), pages 240-252, March.
    11. Kennan, John & Wilson, Robert, 1989. "Strategic Bargaining Models and Interpretation of Strike Data," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 4(S), pages 87-130, Supplemen.
    12. Anat R. Admati & Motty Perry, 1987. "Strategic Delay in Bargaining," Review of Economic Studies, Oxford University Press, vol. 54(3), pages 345-364.
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    Cited by:

    1. Srihari Govindan & Robert Wilson, 2009. "On Forward Induction," Econometrica, Econometric Society, vol. 77(1), pages 1-28, January.
    2. Cramton, Peter & Kwerel, Evan & Williams, John, 1998. "Efficient Relocation of Spectrum Incumbents," Journal of Law and Economics, University of Chicago Press, vol. 41(2), pages 647-675, October.
    3. Peter Cramton & Morley Gunderson & Joseph Tracy, 1999. "The Effect Of Collective Bargaining Legislation On Strikes And Wages," The Review of Economics and Statistics, MIT Press, vol. 81(3), pages 475-487, August.
    4. Ahmet Ozkardas & Agnieszka Rusinowska, 2013. "An application of wage bargaining to price negotiation with discount factors varying in time," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00881151, HAL.
    5. Cabrales, Antonio & Espin, Antonio & Kujal, Praveen & Rassenti, Stephen, 2017. "Humans' (incorrect) distrust of reflective decisions," CEPR Discussion Papers 11949, C.E.P.R. Discussion Papers.
    6. Coles, Melvyn & Smith, Eric, 1998. "Strategic bargaining with firm inventories," Journal of Economic Dynamics and Control, Elsevier, vol. 23(1), pages 35-54, September.
    7. Ahmet Ozkardas & Agnieszka Rusinowska, 2014. "Wage bargaining with discount rates varying in time under different strike decisions," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00975533, HAL.
    8. Carlos Diaz-Moreno & Jose E. Galdon-Sanchez, 2000. "Collective Bargaining under Complete Information," STICERD - Theoretical Economics Paper Series 401, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    9. repec:hal:journl:halshs-00881151 is not listed on IDEAS
    10. Sergi Jiménez-Martín & Jaume Garcia, 2010. "Initial offers and outcomes in wage bargaining: who wins?," Empirical Economics, Springer, vol. 39(3), pages 815-846, December.
    11. Goerke, Laszlo & Schnabel, Claus, 2002. "On strike insurance," Discussion Papers 12, Friedrich-Alexander University Erlangen-Nuremberg, Chair of Labour and Regional Economics.
    12. Kennan, John, 1995. "Repeated contract negotiations with private information," Japan and the World Economy, Elsevier, vol. 7(4), pages 447-472, November.
    13. Ahmet Ozkardas & Agnieszka Rusinowska, 2012. "Wage bargaining with discount rates varying in time under exogenous strike decisions," Documents de travail du Centre d'Economie de la Sorbonne 12013, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    14. Houba, Harold & Bolt, Wilko, 2000. "Holdouts, backdating and wage negotiations," European Economic Review, Elsevier, vol. 44(9), pages 1783-1800, October.
    15. Govindan, Srihari & Wilson, Robert B., 2008. "Decision-Theoretic Forward Induction," Research Papers 1986, Stanford University, Graduate School of Business.
    16. Adriana Cassoni, 1997. "A brief survey on the role of trade unions in labour market," Documentos de Trabajo (working papers) 0697, Department of Economics - dECON.
    17. Shogren, Jason F., 1998. "Coasean bargaining with symmetric delay costs," Resource and Energy Economics, Elsevier, vol. 20(4), pages 309-326, December.

    More about this item

    JEL classification:

    • J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory


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