Wage bargaining as an optimal control problem: A dynamic version of the efficient bargaining model

Marco Guerrazzi

MPRA Paper from University Library of Munich, Germany

Abstract: In this paper, I develop a dynamic version of the efficient bargaining model grounded on optimal control in which a firm and a union bargain over the wage in a continuous-time environment under the supervision of an infinitely lived mediator. Overturning the findings achieved by means of a companion right-to-manage framework, I demonstrate that when employment is assumed to adjust itself in the direction of the contract curve implied by the preferences of the two bargainers, increases in the bargaining power of the firm (union) accelerate (delay) the speed of convergence towards the stationary solution. In addition, confirming the reversal of the results obtained when employment moves over time towards the firm's labour demand, I show that the dynamic negotiation of wages tends to penalize unionized workers and favour the firm with respect to the bargaining outcomes retrieved with a similar static wage-setting model.

Keywords: Wage-employment bargaining; Optimal control; Local dynamics. (search for similar items in EconPapers)
JEL-codes: E24 J52 (search for similar items in EconPapers)
Date: 2020-07-23
New Economics Papers: this item is included in nep-cta and nep-mac
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Journal Article: Wage bargaining as an optimal control problem: a dynamic version of the efficient bargaining model (2021)
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