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The Kalai-Smorodinsky Solution in Labor-Market Negotiations

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  • Thorsten Bayindir-Upmann
  • Anke Gerber

Abstract

Authors who consider efficient bargaining on the labor market predominantly focus on the Nash-bargaining solution. It seems, however, that actual labor market negotiations between an employers’ federation and a labor union are often characterized by mutual concessions, which may be accounted for by an application of the Kalai-Smorodinsky solution to labor-market negotiations. Correspondingly, we investigate how a government can influence the equilibrium on the labor market by changing the reservation wage when the equilibrium is determined by the Kalai-Smorodinsky solution. We find that the induced employment effects may differ substantially when compared with the Nash bargaining solution. Hence, substituting the Kalai-Smorodinsky by the Nash bargaining solution is not innocuous, when actual negotiations are characterized by mutual incremental concessions.

Suggested Citation

  • Thorsten Bayindir-Upmann & Anke Gerber, 2003. "The Kalai-Smorodinsky Solution in Labor-Market Negotiations," CESifo Working Paper Series 941, CESifo.
    • Handle: RePEc:ces:ceswps:_941
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    References listed on IDEAS

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    Cited by:

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    3. Wesselbaum, Dennis, 2009. "Firing costs in a New Keynesian model with endogenous separations," Kiel Working Papers 1550, Kiel Institute for the World Economy (IfW Kiel).

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