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Wage Determination and the Sources of Bargaining Power

Author

Listed:
  • Manzini, Paola

    () (University of Sussex)

  • Snower, Dennis J.

    () (Kiel Institute for the World Economy)

Abstract

This paper explores the sources of bargaining power in wage negotiations. In the standard analyses of wage bargaining, the negotiation partners are specified a priori, and thus it is impossible to address the question of how they achieve and retain their negotiating positions, on which their bargaining power is based. In our analysis, by contrast, the firm can choose between two sets of wage negotiations: those it can conduct with its incumbent employees and those with new job seekers. These negotiations are imperfectly substitutable, and the degree of substitutability is determined by the firm’s labor turnover costs (e.g. costs of hiring, training, and firing). In this context, labor turnover costs not only influence the negotiators’ alternative to bargaining (i.e. their 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., 2002. "Wage Determination and the Sources of Bargaining Power," IZA Discussion Papers 535, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp535
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    Cited by:

    1. Guerrazzi, Marco, 2016. "Wage and employment determination in a dynamic insider-outsider model," MPRA Paper 74759, University Library of Munich, Germany.
    2. Alfonso Arpaia & Karl Pichelmann, 2007. "Nominal and real wage flexibility in EMU," International Economics and Economic Policy, Springer, vol. 4(3), pages 299-328, November.
    3. Stenbacka, Rune & Tombak, Mihkel, 2012. "Make and buy: Balancing bargaining power," Journal of Economic Behavior & Organization, Elsevier, vol. 81(2), pages 391-402.

    More about this item

    Keywords

    bargaining; wage determination; labor turnover costs; credibility; bonding; churning;

    JEL classification:

    • 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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