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Wage Bargaining, Inventories, and Union Legislation

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  • Melvyn G. Coles
  • Andrew K. G. Hildreth

Abstract

This paper analyses a strategic bargaining game where the firm may or may not be able to sell out of its inventory of finished goods during a strike. Firms and the union are both risk neutral and have the same discount rate. It is shown that the wage equilibrium corresponds to the axiomatic Nash bargaining solution where the threatpoints are the agents' payoffs should bargaining continue indefinitely. We use the 1980 and 1982 Employment Acts to test this theory, interpreting that legislation change as changing the firm's threatpoint but not its bargaining power. This allows us to identify the value of the firm's threatpoint post-1982. Formal tests support the theory. Also consistent with the theory, it is found that union wages decrease with inventories after 1982, but not before, and that the union wage gap is smaller after 1982.

Suggested Citation

  • Melvyn G. Coles & Andrew K. G. Hildreth, 2000. "Wage Bargaining, Inventories, and Union Legislation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 67(2), pages 273-293.
    • Handle: RePEc:oup:restud:v:67:y:2000:i:2:p:273-293.
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    File URL: http://hdl.handle.net/10.1111/1467-937X.00131
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    Cited by:

    1. Pierre-André Chiappori & Olivier Donni, 2005. "Learning From a Piece of Pie: The Empirical Content of Nash Bargaining," THEMA Working Papers 2006-07, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    2. Melvyn Coles & Adrian Masters, 2006. "Optimal Unemployment Insurance in a Matching Equilibrium," Journal of Labor Economics, University of Chicago Press, vol. 24(1), pages 109-138, January.
    3. Marja-Liisa Halko, 2004. "Buffer funding of unemployment insurance in a dynamic labour union model," Macroeconomics 0404030, University Library of Munich, Germany.
    4. Fella Giulio, 2012. "Matching, Wage Rigidities and Efficient Severance Pay," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-35, December.
    5. Emanuele Bacchiega, 2007. "Wage bargaining and vertical differentiation," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 54(1), pages 35-52, March.
    6. Melvyn G. Coles & Abhinay Muthoo, 2000. "Bargaining Equilibrium in a Non-Stationary Environment," Econometric Society World Congress 2000 Contributed Papers 0472, Econometric Society.
    7. Coles, Melvyn G. & Muthoo, Abhinay, 2003. "Bargaining in a non-stationary environment," Journal of Economic Theory, Elsevier, vol. 109(1), pages 70-89, March.
    8. Coles, Melvyn & Smith, Eric, 1998. "Strategic bargaining with firm inventories," Journal of Economic Dynamics and Control, Elsevier, vol. 23(1), pages 35-54, September.
    9. Paulo Bastos & Udo Kreickemeier & Peter W. Wright, 2010. "Open‐shop unions and product market competition," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 43(2), pages 640-662, May.
    10. Fella Giulio, 2012. "Matching, Wage Rigidities and Efficient Severance Pay," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-35, December.
    11. Leach, John, 1997. "Inventories and Wage Bargaining," Journal of Economic Theory, Elsevier, vol. 75(2), pages 433-463, August.

    More about this item

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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