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On the Foundations of Wage Bargaining

Author

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  • Manzini, Paola
  • Snower, Dennis J.

Abstract

This paper provides strategic foundations for the insight that the bargaining power of employees depends on the firm’s labour turnover costs. The analysis shows how these costs determine the firm’s degree of substitutability between two sets of wage negotiations: (i) those the firm conducts with its incumbent employees; and (ii) the alternative negotiations it could conduct with new job seekers. In this context, labour turnover costs not only influence the negotiators’ alternatives to bargaining (i.e. the negotiators’ fall-back positions and outside options); they affect the nature of the bargaining process itself. This approach leads to a new theory of wage determination.

Suggested Citation

  • Manzini, Paola & Snower, Dennis J., 1996. "On the Foundations of Wage Bargaining," CEPR Discussion Papers 1514, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:1514
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    Cited by:

    1. Assar Lindbeck & Dennis J. Snower, 2001. "Insiders versus Outsiders," Journal of Economic Perspectives, American Economic Association, vol. 15(1), pages 165-188, Winter.
    2. Pilar Díaz-Vázquez & Dennis J. Snower, 2003. "Can Insider Power Affect Employment?," German Economic Review, Verein für Socialpolitik, vol. 4(2), pages 139-150, May.
    3. Díaz-Vázquez, Pilar & Snower, Dennis J., 2003. "Can insider power affect employment?," Open Access Publications from Kiel Institute for the World Economy 2992, Kiel Institute for the World Economy (IfW).

    More about this item

    Keywords

    Bargaining; Insider-outsider; Labour Turnover Costs; Outside Option;

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions

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