Endogenous scope of bargaining in a union–oligopoly model: when will firms and unions bargain over employment?

The scope of firm–union bargaining is shown to be endogenously determined in a union–oligopoly model with decentralized negotiations. If the unions' power is sufficiently high, all bargaining units choose to negotiate over wages alone, i.e., universal right-to-manage bargaining emerges in equilibrium. Otherwise, wage/employment bargaining and right-to-manage bargaining coexist in the same industry. In equilibrium, some firm–union pairs will always choose to bargain over employment as well, since the firms become Stackelberg leaders in the market by committing to a particular output during the negotiations. The firms and their unions both benefit from the additional Stackelberg rents, provided that the unions' power is small enough. Our analysis suggests that there is not necessarily a negative relationship between unions' power and sectoral employment rates.     

Price and Quantity Competition in a Differentiated Duopoly with Upstream Suppliers

This paper analyzes the noncooperative game on the choice of strategic variable to set in duopoly in the presence of an upstream market for the input. For the case of labor input, the analysis shows that if the wage is the result of decentralized firm-union bargain, a duopoly producing substitutes may choose to compete either in the quantity space or in the price space, depending upon the distribution of bargaining power in the wage negotiation and the union's relative preference over the wage. For the case of input suppliers as profit-maximizing firms, the paper shows that a vertically differentiated duopoly may prefer to compete either in the quantity space or in a mixed strategy setting where the high-quality firm plays price and the low-quality firm plays quantity, depending upon the extent of substitutability, the degree of vertical product differentiation and the distribution of bargaining power in the input price negotiation.     

Wage claims in the British private sector: 1979–2003

Wage claims have been an important feature of British industrial relations during the postwar period. They help set the boundaries within which wage negotiations take place and provide an insight into the conduct of negotiations, especially during periods of change in industrial relations. Despite this, claims remain an underinvestigated area. This article provides a unique investigation of the dimensions of wage claims over a period of free collective bargaining. The number of wage claims declined along with unionisation but, over a period of economic turbulence, the conduct of British wage setting began to change. We examine data on claims and investigate the influences on changes in those claims over time. We find that external factors (inflation, unemployment and legislative control of unions) were more prominent in shaping the development of claims than changes in the composition of groups who continued to post claims.     

Strategic militancy and the probability of strikes in union-firm bargaining

The paper provides a model that explains the probability of strikes by the union's use of militancy as a strategic tool in bargaining. Militants are useful because they provide a credible threat, hence enhancing the union's bargaining position. Using a multi-stage bargaining game, we show that, in general, militants will be used by the union as a strategic tool. The strategic benefit of militancy is reflected by the fact that the wage and employment level will be higher in a union that uses militants, compared to a union that does not. We use the model to show that the level of militancy and the probability of a strike decrease with the union's power. This suggests that policies that increase the strength of the union will have, at least, a partial positive effect on social welfare. We also show that the model can be viewed as providing an equilibrium of a repeated game, an interpretation that can explain the probability of strikes even in the absence of militants.     

The sequencing of union contract negotiations

In this paper we explore the determination of the sequencing of wage bargains in an institutional structure consisting of a single firm employing two unions, under two alternative assumptions about the nature of feasible contracts. If contingent contracts are prohibitively costly, we find that the unions prefer to lead in the negotiations process if the labor inputs are substitutes and follow if they are complements, while the firm is indifferent. If contingent contracts are permitted, both unions prefer to lead, while the firm prefers to negotiate first with the weaker union.     

Firm heterogeneity and wages in unionised labour markets: Theory and evidence

In many countries wages are set in two stages, where industry-level collective bargaining is followed by firm-specific arrangements determining actual paid wages as a mark-up on the industry wage floor. What explains the wage set in each of these stages? In this paper we show that both the industry wage floor and the average wage cushion are systematically associated with the degree of firm heterogeneity in the industry: The former (latter) is negatively (positively) associated with the productivity spread. Furthermore, since the response of the wage floor dominates that of the wage cushion, workers in more heterogeneous industries tend to get lower actual paid wages. These conclusions are reached in a model of Cournot oligopoly with firm productivity heterogeneity and a two-tiered wage setting system. They are then confirmed by administrative data covering virtually all workers, firms and collective bargaining agreements of the Portuguese private sector for the period 1991–2000.     

On the effectiveness of individual wage incentive plans in manufacturing firms

This study was designed to investigate individual wage incentive plans (IWIPs) in manufacturing industry. Two sets of hypotheses were formulated. The first dealt with certain characteristics, primarily organizational, that distinguish firms with IWIPs from those that did not introduce such plans. The second proposed certain correlates of the effectiveness of IWIPs.

These hypotheses were tested in a random probability sample (n = 80) of manufacturing firms in Israel. In each firm, at least two management representatives were interviewed. The analyses were all conducted at the firm level.

Firms with IWIPs (n = 60) were found to be larger and older relative to those without such plans. No difference was observed in the extent to which these two groups of firms used other types of wage incentives (e.g. group incentives). The second set of hypotheses was tested only in the subsample of firms with IWIPs. As expected, in this subsample a firm's labour productivity (mean level = 121 per cent) was closely related (r = .44) to the mean premium (36 per cent) that the covered employees received. The technical characteristics of the time study procedure, used to set performance standards for the IWIPs, were found not to be related to the level of either labour productivity or premium paid. These two criteria of IWIP effectiveness were found to be significantly higher in firms wherein the local union initiated the plan (n = 18) relative to the firms wherein management was the initiating party (n = 42). These and related findings are discussed in the broader context of current opinions on the pros and cons of IWIPs.     

The economics of union organization: Efficiency,information and profitability

This article presents a game-theoretical model of union organization that highlights the role played by efficiency and asymmetric information as determinants of unionization and questions commonly-held assumptions about the effect of firm profitability on unionization decisions. In the model, employers set wages taking into account the effect of their choices on workers' incentives to unionize. As a result of employers' strategic wage setting, collective bargaining emerges in equilibrium only if it increases surplus or if there is asymmetric information about the consequences of unionization. While unionization is usually assumed to be more likely in more profitable firms, the model shows that the probability of unionization will be higher in firms with lower rents. It also shows that the union wage premium and unionization will tend to be negatively correlated.     

The transformation of the wage and performance appraisal system in a Japanese firm

This paper analyses how performance appraisal has affected the wages of employees in a unionized Japanese firm over time, using firm-level wage and performance appraisal data. Data show that the wage and performance-appraisal systems have been shifting to a performance basis, and away from the heavy reliance on age and seniority characteristic of the old systems. In the process, wage differentials among employees are becoming wider, particularly among those 37 to 41 years old and those 49 to 55 years old. Management introduced the new wage system through a process of concessionary bargaining. Surprisingly, employees, rather than the enterprise union, were able to convince management to modify their initial plans during bargaining over the new wage system.     

Monopsonistic competition for the “best” workers

In this paper we analyse an economy where firms use labour as the only production factor, with constant return to scale. We suppose that jobs differ in their non-wage characteristics so each firm has monopsonistic power. In particular, we suppose that workers are heterogeneous with respect to their productivity. Then, each firm has incentives to offer higher wages in order to recruit the most productive workers. Competition among firms leads to a symmetric equilibrium wage, which is higher than the reservation wage, and to involuntary unemployment for the less productive workers, who are willing to work at the current wage but are not hired because their productivity is lower than the wage level. If firms have no institutional constraint on paying lower wages for the same job, an endogenous labour market segmentation emerges.     

Ownership,firm size and rent sharing in Bulgaria

Using a unique three-digit firm-level data set of all medium and large manufacturing enterprises in Bulgaria covering the years 1997–1998, we investigate how wages are affected by ownership status, firm size and rent sharing. Our pooled OLS, panel and first-difference TSLS estimates clearly point to ownership structure as an important determinant of both the wage level (for given productivity) and the degree of rent sharing. Rent sharing is very pronounced in state-owned firms but far less pronounced in private domestic and foreign firms. The results strongly confirm the existence of a multinational wage premium. In addition, we find weak evidence of a positive firm size-wage effect and a positive effect of firm size on the degree of rent sharing. If these effects exist, they are often more pronounced in private domestic firms.     

Verifiable wage offers and recontracting: effect on wage and consumption profiles

This paper analyzes the effect of recontracting and matching verifiable wage offers on the intertemporal structure of contract wage and consumption profile for a two-period economy. A contract firm provides specific training for a worker during the first period, which increases his productivity if he stays in the second period, but the worker may quit to accept an alternative wage offer after a successful search. Wage offers are private to the worker but can be presented to the contract firm for matching. This paper shows that when capital markets are imperfect and wage offers are verifiable, the contract firm recontracts and matches any wage offers the worker receives up to the second-period productivity. The ex ante contract wage profile will be flat. Inefficient quits will be eliminated and there will be complete ex ante consumption smoothing. It is significant to note that the result of rising wage profile derived in numerous contract models is fragile with respect to assumptions on mechanism of interfirm labor mobility.     

Firm-specific Human Capital Accumulation: Evidence from Brazil*

We introduce firm-specific returns to experience and tenure into a standard two-way fixed effects model, show that they are separately identified under the standard exogenous mobility assumption and with sufficient between firm mobility, and provide a new evidence on heterogeneity of returns to experience and tenure across firms using the administrative data from Brazil over the years 1999–2014. We document that (1) returns to tenure are not strongly related to firm wage premia, (2) returns to experience are strongly negatively correlated with firm wage premia, (3) the relationship between firm wage premium and return to experience is stronger for ‘blue collar’ firms.     

Firm-specific wage growth and changes in the labor market for managers

This paper analyzes recent changes in the employment relationships between managers and firms. In both Becker's and Lazear's models of firm-specific wage growth, compensation is deferred from early in an employee's tenure with a firm until later in the contract. The deferred compensation bonds the worker to the firm. Based on cross-sectional data from Current Population Surveys, rates of firm-specific wage growth are estimated for the managerial labor market. The findings show that the rate of wage growth that is firm-specific for managers in manufacturing industries declined significantly during the early 1980s. It is estimated, for example, that a manager with 12 years of tenure in a manufacturing firm enjoyed, on average, a 25% wage premium in 1979 over an otherwise similar manager who was a new hire in a firm. By 1983 the firm-specific wage premium for a manager with 12 years of tenure was only 5%. These changes represent a significant reduction in the strength of the employment bond between firms and managers, and a reduction in the incentive effects previously enjoyed by firms from the use of deferred-compensation schemes. This change is consistent with the significant increases in the displacement rates of managers that occurred during the 1980s.     

Rising wage inequality,the decline of collective bargaining,and the gender wage gap

This paper investigates the increase in wage inequality, the decline in collective bargaining, and the evolution of the gender wage gap in West Germany between 2001 and 2006. Based on detailed linked employer–employee data, we show that wage inequality is rising strongly — driven not only by real wage increases at the top of the wage distribution, but also by real wage losses below the median. Coverage by collective wage bargaining plummets by 16.5 (19.1) percentage points for male (female) employees. Despite these changes, the gender wage gap remains almost constant, with some small gains for women at the bottom and at the top of the wage distribution. A sequential decomposition analysis using quantile regression shows that all workplace related effects (firm effects and bargaining effects) and coefficients for personal characteristics contribute strongly to the rise in wage inequality. Among these, the firm coefficients effect dominates, which is almost exclusively driven by wage differences within and between different industries. Labor demand or firm wage policy related effects contribute to an increase in the gender wage gap. Personal characteristics tend to reduce wage inequality for both males and females, as well as the gender wage gap.     

Seasonality and Wage Responsiveness in a Developing Agrarian Economy

This paper studies the wage responsiveness of labour supply and demand, simultaneously addressing the twin issues of the non-clearing of developing rural labour markets and seasonality. It employs a data set pertaining to south-central India, and limits itself to the agricultural market for daily-rated labour (by far the predominant form of wage contract in the sample villages). Estimating a theoretically robust and empirically justified disequilibrium model of the agricultural labour market, we find no evidence of backward-bending supply curves or 'vertical' demand curves, contrary to findings in the literature. Further, while the agricultural labour market appears to be in equilibrium during the kharif (or rainy) season, it manifests excess supply in the rabi (or post-rainy) season.     

Other comprehensive income,corporate governance,and firm performance in China

This research is based on a data set comprising 6260 firm-year observations from listed companies on the Shanghai and Shenzhen Stock Exchanges during 2009–2015, and the results indicate that other comprehensive income (OCI) disclosure generally improves firm performance, whereas earnings management reduces firm performance. The study also finds that OCI disclosure and corporate governance are complementary in restraining earnings manipulation and promoting firm performance, and there is a causal relationship between OCI disclosure and earnings management to affect firm performance.     

The effects of wage compression on unemployment and on the intersectoral distribution of employment: a dynamic model

A two-sector economy is modeled in a dynamic general equilibrium framework. If the steady state emerging in the absence of a minimum wage exhibits unemployment, the imposition of a binding wage floor lowers employment in the service sector without affecting employment in manufacturing. The wage differential between the two sectors shrinks and the quality of the service improves, but unemployment increases. In contrast, if this steady state exhibits full employment, a binding (but relatively low) minimum wage may bring about a more egalitarian income distribution and upgrade the quality of jobs in the service sector, without creating unemployment.     

Tax progression and training in a matching framework

This paper investigates the effect of tax progression on labour market outcomes in an equilibrium search model with wage bargain and endogenous training decisions. We find that the effect of tax progression on training depends crucially on which party invests and the tax function that is considered. When the firm invests, a higher tax progression may increase training levels. Moreover, when a complete contract is possible or when the firm invests, the optimal tax rate in a model with endogenous human capital is at least as high as in a model with exogenous human capital.     

A New Keynesian model with staggered price and wage setting under learning

This paper provides a study of the implications for economic dynamics when the central bank sets its nominal interest rate target in response to variations in wage inflation. I provide results on the existence, uniqueness, and stability under learning of rational expectations equilibrium for alternative specifications of the manner in which monetary policy responds to economic shocks when nominal rigidities are present. Monopolistically competitive producers set prices via staggered price contracts, and households set nominal wages in the same fashion. In this setting, the conditions for determinacy and learnability of rational expectations equilibrium differ from a model where only prices are sticky. I find that when the central bank responds to wage and price inflation and to the output gap, a Taylor principle for wage and price inflation arises that is related to stability under learning dynamics. In other words, a moderate reaction of the interest rate to wage inflation helps to avoid instability under learning and indeterminacy.