Wages and Employment in a Repeated Game with Revenue Fluctuations
This paper analyses wages and employment in a repeated game between a union and a firm. The parties cannot enter a binding contract, and revenue is fluctuating. It is shown that if discount factors are moderate, then the best sequence of wage rates and employments sustainable in a subgame perfect equilibrium and sharing the surplus in fixed proportions, has a more counter cyclical wage rate than the one sharing the surplus in the same proportions in each period. This result holds true whether the revenue shocks are i.i.d. or follows a Markov process with persistence.
|Date of creation:||Jan 1995|
|Date of revision:|
|Publication status:||Published in: European Economic Review, 1997, 41(1) pp 147-62|
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