The trade-off between precommitment and flexibility in trade union wage setting

Simon Anderson and Michael Devereux

No 199007, Working Papers from School of Economics, University College Dublin

Abstract: This paper examines two types of contract structures in a model where a trade union supplies labor to an industry, and sets the wage to maximize welfare. Firms' investment is endogenous, and the industry price is stochastic. Under short-term contracts, the union sets the wage after the firms' investment is in place, but also after the industry price is known. Under long- term contracts, the wage is chosen before investment and before the industry price is known. With short-term contracts the union has the benefit of ex-post wage flexibility, while under long-term contracts the union has the benefit of advance wage commitment which may be an important determinant of contract structure. The trade-off is examined in detail.

Keywords: Labor unions; wages; Labor contract; Labor market--Econometric models (search for similar items in EconPapers)
Date: 1990
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http://hdl.handle.net/10197/1476 First version, 1990 (application/pdf)

Related works:
Journal Article: The Trade-off between Precommitment and Flexibility in Trade Union Wage Setting (1991)
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Persistent link: https://EconPapers.repec.org/RePEc:ucn:wpaper:199007

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