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Initial Offers and Outcomes in Wage Barganing: Who Wins?

  • Jaume Garcia,
  • Sergi Jiménez-Martín

The initial works council’s wage claim and the initial firm’s (counter)offer as well as the fraction of the disputed wages the works council is able to capture conditional on initial disagreement are analyzed on the basis of a Spanish sample of wage settlements. After a given initial wage claim, the system forces the firm either to accept it or to make a counteroffer prior to a fixed (unknown to the econometrician) and short deadline. In this context signaling models predict that the wage claim should try to screen the firm’s level of profitability, while the offer is expected to reveal little information. Both hypotheses are tested using the Spanish data set and neither is rejected. The analysis of the fraction of the disputed wages the workers get after initial disagreement provides further evidence in favour of signalling models since we find it is to both observed and private information as well as to conflicting activity variables. Moreover, conditional on covariates, for a number of sectors, we cannot reject the parties “split the difference” between both initial offers. Note this solution coincides with the Rubinstein’s (1982) wage, the solution for the complete information game.

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Paper provided by FEDEA in its series Working Papers with number 2007-22.

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Date of creation: Jun 2007
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Handle: RePEc:fda:fdaddt:2007-22
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  1. Lawrence F. Katz & Olivier Blanchard, 1999. "Wage Dynamics: Reconciling Theory and Evidence," American Economic Review, American Economic Association, vol. 89(2), pages 69-74, May.
  2. Grossman, Sanford J. & Perry, Motty, 1986. "Sequential bargaining under asymmetric information," Journal of Economic Theory, Elsevier, vol. 39(1), pages 120-154, June.
  3. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 252, David K. Levine.
  4. R Blundell & Steven Bond, . "Initial conditions and moment restrictions in dynamic panel data model," Economics Papers W14&104., Economics Group, Nuffield College, University of Oxford.
  5. Peter C. Cramton & Morley Gunderson & Joseph S. Tracy, 1995. "The Effect of Collective Bargaining Legislation on Strikes and Wages," NBER Working Papers 5105, National Bureau of Economic Research, Inc.
  6. Peter Cramton & Joseph S. Tracy, 1994. "Wage Bargaining with Time-Varying Threats," Papers of Peter Cramton 94jolew, University of Maryland, Department of Economics - Peter Cramton, revised 09 Jun 1998.
  7. Fernandez, Raquel & Glazer, Jacob, 1991. "Striking for a Bargain between Two Completely Informed Agents," American Economic Review, American Economic Association, vol. 81(1), pages 240-52, March.
  8. Kennan, John, 1987. "The economics of strikes," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 2, chapter 19, pages 1091-1137 Elsevier.
  9. Gu, Wulong & Kuhn, Peter, 1998. "A Theory of Holdouts in Wage Bargaining," American Economic Review, American Economic Association, vol. 88(3), pages 428-49, June.
  10. Admati, Anat R & Perry, Motty, 1987. "Strategic Delay in Bargaining," Review of Economic Studies, Wiley Blackwell, vol. 54(3), pages 345-64, July.
  11. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
  12. Peter Cramton & Joseph Tracy, 2003. "Unions, Bargaining and Strikes," Papers of Peter Cramton 02ubs, University of Maryland, Department of Economics - Peter Cramton, revised 05 Sep 2002.
  13. Peter Cramton & Joseph S. Tracy, 1992. "Strikes and Holdouts in Wage Bargaining: Theory and Data," Papers of Peter Cramton 92aer, University of Maryland, Department of Economics - Peter Cramton, revised 09 Jun 1998.
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