On the Foundations of Wage Bargaining

Paola Manzini and Dennis Snower

Archive Discussion Papers from Birkbeck, Department of Economics, Mathematics & Statistics

Abstract: This paper provides strategic foundations for the insight that the bargaining power of employees depends on the firm's labor turnover costs. The analysis shows how these costs determine the firm's degree of substitutability between two sets of wage negotiations: (i) those the firm conducts with its incumbent employees, and (ii) the alternative negotiations it could conduct with new job seekers. In this context, labour turnover costs not only influence the negotiators' alternatives to bargaining (i.e., the negotiators' alternatives to bargaining (i.e., the negotiatior's 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.

Keywords: bargaining; outside option; insider-outsider; labour turnover costs. (search for similar items in EconPapers)
JEL-codes: C78 J31 J32 (search for similar items in EconPapers)
Date: 1996
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Related works:
Working Paper: On the Foundations of Wage Bargaining (1996)
Working Paper: On the Foundations of Wage Bargaining (1996)
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