Collective bargaining about corporate social responsibility

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AbstractIf a profit‐maximizing firm credibly commits to an employment‐enhancing corporate social responsibility objective in negotiations with a trade union, the union can reduce its wage demands. Lower wages, ceteris paribus, raise profits, while the increase in employment enhances the payoff of a wage‐setting trade union. Therefore, both the firm and the trade union can be better off in the presence of a collectively bargained corporate social responsibility objective than in its absence. Accordingly, establishing a corporate social responsibility objective can give rise to a Pareto improvement and mitigate the inefficiency resulting from collective wage negotiations.