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Wage Bargaining, Inventories, and Union Legislation

Author

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  • Coles, Melvyn G
  • Hildreth, Andrew

Abstract

This paper analyses the Rubinstein bargaining game with random alternating offers when the firm has an inventory of finished goods. If the firm can sell out of that inventory during a strike, we show that the negotiated wage is a decreasing function of the inventory stock. Conversely, if the union can form an effective picket line, which blockades firm deliveries during a strike, the negotiated wage is higher and increases with the inventory stock. Noting that the 1980 and 1982 Employment Acts changed unions’ ability to form effective picket lines, the empirical section tests these theoretical predictions using a panel of firms over the period 1972–90. It was found that inventory levels did not have a significant effect on unionised firm wages prior to 1982, but have a significantly negative effect post legislation. For union firms post-legislation, and for non-union firms generally, the wage elasticity with respect to inventories is –0.1. The figures show that the mean union wage differential fell from 2.6% to 0.6% over 1974–81 and 1982–90.

Suggested Citation

  • Coles, Melvyn G & Hildreth, Andrew, 1996. "Wage Bargaining, Inventories, and Union Legislation," CEPR Discussion Papers 1361, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:1361
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    Citations

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    Cited by:

    1. Emanuele Bacchiega, 2007. "Wage bargaining and vertical differentiation," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 54(1), pages 35-52, March.
    2. Leach, John, 1997. "Inventories and Wage Bargaining," Journal of Economic Theory, Elsevier, vol. 75(2), pages 433-463, August.

    More about this item

    Keywords

    Dynamic Bargaining; Wage Determination;

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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