The authors investigate the effects of wage compression through centralized collective bargaining when growth depends on the continual reallocation of labor from older, less productive plants to new, more productive plants. They first study the compression of wage differentials that derive from decentralized bargaining in heterogeneous plants. The authors then consider wage compression when wage differentials arise from competition among employers over workers of differing quality. They show that wage compression through centralized bargaining can result in higher profits and greater entry of new plants than either decentralized bargaining or a competitive labor market. Copyright 1997 by University of Chicago Press.
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