Wage Bargaining with Time-Varying Threats

Peter Cramton and Joseph Tracy

Journal of Labor Economics, 1994, vol. 12, issue 4, 594-617

Abstract: The authors study wage bargaining in which the union is uncertain about the firm's willingness to pay and threat payoffs vary over time. Strike payoffs change as replacement workers are hired, as strikers find temporary jobs, and as inventories or strike funds run out. The authors find that bargaining outcomes are substantially altered if threat payoffs vary. If dispute costs increase in the long run, then dispute durations are longer, settlement rates are lower, and wages decline more slowly during the short run (and may even increase). The settlement wage is largely determined from the long-run threat, rather than the short-run threat. Copyright 1994 by University of Chicago Press.

Date: 1994
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Working Paper: Wage Bargaining with Time-Varying Threats (1998)
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