Wage Bargaining with Time-Varying Threats
Peter Cramton and Joseph S. Tracy
,
4
(
12
)
Journal of Labor Economics
594-617
October
1994
Abstract
We study wage bargaining in which the union is uncertain about the firm’s willingness to pay and threat payoffs vary over time. Strike payoffs change over time as replacement workers are hired, as strikers find temporary jobs, and as inventories or strike funds run out. We find that bargaining outcomes are substantially altered if threat payoffs vary. If dispute costs increase in the long-run, then dispute durations are longer, settlement rates are lower, and wages decline more slowly during the short-run (and may even increase).