Collective bargaining in the public sector and the role of budget determination

Abstract

This paper considers collective bargaining in a public sector institutional setting. The model demonstrates how budget constraints and hierarchical structure affect the bargaining outcome. A trade union bargains over wage and employment either with an output-maximizing bureau or the bureau's sponsoring institution. The slope of the contract curve depends on the bargaining level because the budget constraints differ. Various assumptions are made about the timing of the sponsor's decision concerning the budget of the bureau. Local bargaining and budget determination between the wage and employment bargains can be optimal for the sponsor because it yields a low wage.