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Wage bargaining and capital accumulation: A dynamic version of the monopoly union model

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  • Guerrazzi, Marco

Abstract

In this paper, I explore the relationship between wage bargaining and capital accumulation by developing a differential game in which a monopolistic union sets the wage of its members by taking as given the optimal employment strategy of a representative firm and the way in which capital is evaluated over time. Under the assumption that investment amounts to a constant share of produced output, I show that a meaningful open-loop Stackelberg equilibrium requires the union to be more patient than the firm. Moreover, relying on some numerical simulations, I show that although adjustments towards the steady-state equilibrium occur through damped oscillations, after an initial period of decline the model predicts a stable union wage premium.

Suggested Citation

  • Guerrazzi, Marco, 2024. "Wage bargaining and capital accumulation: A dynamic version of the monopoly union model," MPRA Paper 121433, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:121433
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    More about this item

    Keywords

    Monopoly union model; Capital accumulation; Binding wage contracts; Differential games; Open-loop Stackelberg equilibrium;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
    • J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation

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