Wage Bargaining with a Price-Setting Firm

Christian Arnsperger and David de la Croix

Bulletin of Economic Research, 1990, vol. 42, issue 4, 285-98

Abstract: This paper examines the introduction of monopolistic competition into wage bargaining models: in addition to capital-labour substitution, we also consider a cost-push effect. The right-to-manage model requires strong restrictions on the objective functions and leads to problematic conclusions because the wage claims of the union are generally not compatible with the mark-up requirement contained in the firm's price equation. In the efficient bargaining model, the union negotiates also the employment level, which gives it a way of extracting part of the monopoly rent: the firm's commitment to an efficient wage-employment combination forces it to follow a pricing rule such that part of the surplus is transferred to the union. Copyright 1990 by Blackwell Publishing Ltd and the Board of Trustees of the Bulletin of Economic Research

Date: 1990
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