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Wage Bargaining Under the National Labor Relations Act

  • Jesse A. Schwartz

    (Department of Economics, Vanderbilt University)

  • Quan Wen


    (Department of Economics, Vanderbilt University)

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Sections 8(a)(3) and 8(a)(5) of the National Labor Relations Act prohibit 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 model where the firm can unilaterally increase wages during contract negotiations. Comparing this model to the case where the firm must pay the wage from the expired contract, we show that the firm may strategically increase the union's temporary wage to upset the union's incentive to strike and to decrease the union's bargaining power. Consequently, increasing temporary wages may shrink the set of equilibrium contracts in the firm's favor. Indeed, as the union becomes more patient, the set of equilibrium wages converges to the expired wage, the best equilibrium outcome to the firm. We further demonstrate that our counterfactual model is valid since our results maintain even if the union is allowed to block the firm's temporary wage increase.

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File Function: First revision, 2004
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Paper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number 0412.

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Date of creation: May 2004
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Handle: RePEc:van:wpaper:0412
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  1. Martin J. Osborne & Ariel Rubinstein, 2005. "Bargaining and Markets," Levine's Bibliography 666156000000000515, UCLA Department of Economics.
  2. Muthoo,Abhinay, 1999. "Bargaining Theory with Applications," Cambridge Books, Cambridge University Press, number 9780521576475, October.
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