A model of unions, two-tier bargaining and capital investment

Gabriele Cardullo, Maurizio Conti and Giovanni Sulis ()

Labour Economics, 2020, vol. 67, issue C

Abstract: In this paper we present a search and matching model with unions in which firms invest in sunk capital equipment. By comparing two wage setting scenarios, we show that a two-tier bargaining scheme, where a fraction of the salary is negotiated at firm level, raises the amount of investment per worker in the economy compared to a one-tier bargaining scheme, in which earnings are entirely negotiated at sectoral level. In two-tier schemes wages depend on the labour productivity at firm level. This reduces the expected duration of a vacancy for capital intensive firms, as they attract a larger number of job seekers. Capital remains unused for less time, boosting investment in the first place. The model’s main result is consistent with the positive correlation between investment per worker and the presence of a two-tier bargaining agreement that we find in a representative sample of Italian firms.

Keywords: Unions; Investment; Hold-up; Two-Tier Bargaining (search for similar items in EconPapers)
JEL-codes: E22 J51 J64 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:labeco:v:67:y:2020:i:c:s0927537120301408

DOI: 10.1016/j.labeco.2020.101936

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