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Wage Bargaining under the National Labor Relations Act

  • Quan Wen
  • Jesse A. Schwartz
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Sections 8(a)(3) and 8(a)(5) of the National Labor Relations Act prevent a firm from unilaterally increasing the wage it pays the union during the negotiation of a new wage contract. To understand this regulation, we study a counterfactual negotiation model where the firm can temporarily increase compensation to its employees during wage negotiations. Comparing this to the case where the firm does not have this option, we show that the firm may strategically increase the union's temporary wage to upset the union's incentive to strike, decreasing the union's bargaining power, and shrinking the set of permanent wage contracts that may arise in a perfect equilibrium. As the union becomes more patient, the best possible equilibrium contract to the union gets worse. In the limit, the uniqueness and hence the full efficiency of the perfect equilibrium are restored. We also demonstrate that allowing the union to refuse the firm's temporary compensation does not affect the set of perfect equilibrium outcomes

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Paper provided by Econometric Society in its series Econometric Society 2004 Far Eastern Meetings with number 554.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:feam04:554
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  1. Haller, Hans & Holden, Steinar, 1990. "A letter to the editor on wage bargaining," Journal of Economic Theory, Elsevier, vol. 52(1), pages 232-236, October.
  2. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 661465000000000387, David K. Levine.
  3. 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 257-76, April.
  4. Card, David, 1990. "Strikes and Bargaining: A Survey of the Recent Empirical Literature," American Economic Review, American Economic Association, vol. 80(2), pages 410-15, May.
  5. Shaked, Avner & Sutton, John, 1984. "Involuntary Unemployment as a Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 52(6), pages 1351-64, November.
  6. Raquel Fernandez & Jacob Glazer, 1989. "Striking for a Bargain Between Two Completely Informed Agents," NBER Working Papers 3108, National Bureau of Economic Research, Inc.
  7. Busch, Lutz-Alexander & Wen, Quan, 1995. "Perfect Equilibria in Negotiation Model," Econometrica, Econometric Society, vol. 63(3), pages 545-65, May.
  8. Houba, Harold, 1997. "The policy bargaining model," Journal of Mathematical Economics, Elsevier, vol. 28(1), pages 1-27, August.
  9. Kennan, J. & Wilson, R., 1991. "Bargaining with Private Information," Working Papers 90-01rev, University of Iowa, Department of Economics.
  10. Muthoo,Abhinay, 1999. "Bargaining Theory with Applications," Cambridge Books, Cambridge University Press, number 9780521576475, January.
  11. 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 816-26, September.
  12. Bolt, Wilko, 1995. "Striking for a Bargain between Two Completely Informed Agents: Comment," American Economic Review, American Economic Association, vol. 85(5), pages 1344-47, December.
  13. Martin J. Osborne & Ariel Rubinstein, 2005. "Bargaining and Markets," Levine's Bibliography 666156000000000515, UCLA Department of Economics.
  14. David Card, 1990. "Strikes and Wages: A Test of an Asymmetric Information Model," The Quarterly Journal of Economics, Oxford University Press, vol. 105(3), pages 625-659.
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