WAGE BARGAINING, HOLDOUT, AND INFLATION

In many countries it is customary that production continuesunder the terms of the old contract during wage negotiations(holdout), unless a work stoppage is initiated This paper analysesa model where the workers deliberately work less efficientlyduring a holdout, while the firm reduces bonus payments If aholdout is more costly to the firm than to the workers, thewage bargaining will result in a nominal wage increase. Themodel implies a Phillips curve that consists of two verticalparts, one with high inflation and low unemployment and onewith low inflation and high unemployment.