Abstract
This paper analyses a dynamic model of bargaining and strikes in which the reservation wage of union members in each period is private information. The model endogenizes the firm's decision to accumulate inventories of finished goods in order to enhance its bargaining position. With higher inventories, the firm makes a lower wage offer, thereby accepting an increased probability of a strike. The model can help explain empirical results that have found a positive correlation between wages and inventory accumulation. It also shows that, unless inventories are controlled for, strike incidence will exhibit a spurious negative state dependence.
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