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Counter intuitive results in a simple model of wage negotiations

Author

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  • Harold Houba

    (Department of Econometrics, Free University, De Boelelaan 1105, 1081 HV Amsterdam, THE NETHERLANDS)

  • Gijsbert van Lomwel

    (CentER, Tilburg University, P.O. Box 90153, 5000 LE Tilburg, THE NETHERLANDS)

Abstract

Short-term contracts and exogenous productivity growth are introduced in a simple wage bargaining model. The equilibrium utilities corresponding to militant union behaviour are independent of the contract length. Necessary and sufficient conditions for monotonic convergence to a unique steady state are derived. Otherwise, cyclic behaviour of wage shares is inevitable. A wage decrease can occur if strike is credible, but never when strike is not credible. In the limit, as time between bargaining rounds vanishes, this paradox survives.

Suggested Citation

  • Harold Houba & Gijsbert van Lomwel, 2001. "Counter intuitive results in a simple model of wage negotiations," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 17(1), pages 81-99.
    • Handle: RePEc:spr:joecth:v:17:y:2001:i:1:p:81-99
    Note: Received: September 3, 1998; revised version: February 10, 2000
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    References listed on IDEAS

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    1. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
    2. Ken Binmore & Ariel Rubinstein & Asher Wolinsky, 1986. "The Nash Bargaining Solution in Economic Modelling," RAND Journal of Economics, The RAND Corporation, vol. 17(2), pages 176-188, Summer.
    3. Bolt, Wilko, 1995. "Striking for a Bargain between Two Completely Informed Agents: Comment," American Economic Review, American Economic Association, vol. 85(5), pages 1344-1347, December.
    4. Fernandez, Raquel & Glazer, Jacob, 1991. "Striking for a Bargain between Two Completely Informed Agents," American Economic Review, American Economic Association, vol. 81(1), pages 240-252, March.
    5. Holden, Steinar, 1997. "Wage Bargaining, Holdout, and Inflation," Oxford Economic Papers, Oxford University Press, vol. 49(2), pages 235-255, April.
    6. Moene, Karl O, 1988. "Unions' Threats and Wage Determination," Economic Journal, Royal Economic Society, vol. 98(391), pages 471-483, June.
    7. Haller, Hans & Holden, Steinar, 1990. "A letter to the editor on wage bargaining," Journal of Economic Theory, Elsevier, vol. 52(1), pages 232-236, October.
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    Cited by:

    1. Harold Houba & Quan Wen, 2008. "On striking for a bargain between two completely informed agents," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 37(3), pages 509-519, December.

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    More about this item

    Keywords

    Wage bargaining; Wage dynamics; Chaos; Strike; Cyclic behaviour.;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General

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