Firm Bargaining Research Articles

The geography of collective bargaining in French multi‐establishment companies

AbstractDespite growing interest in the firm bargaining process, little research focuses on the structure of bargaining within multi‐establishment firms. We question whether running negotiations at the workplace level and/or firm level is a strategic choice for employers. We hypothesize that the level chosen depends on the geography of the firm. Employers face a trade‐off: workplace bargaining is more efficient because it meets local conditions; yet higher level negotiations increase coordination costs for workers and weakens their bargaining power, which can benefit the employer. Using a French representative survey, we find a significant relation between the level of bargaining within a firm and the number, spatial distribution and heterogeneity of its establishments, suggesting that the structure of multi‐establishment firms can inform the level at which collective bargaining takes place.

The limits to upgrading and value capture in R&D global value chains: Indian and Chinese contract R&D firms in the integrated circuit design and pharmaceutical global value chains

This article analyzes the interaction between lead firms and Chinese and Indian contract research and development (R&D) firms in integrated circuit (IC) and chemistry-based pharmaceutical global value chains (GVCs) in order to delineate what factors influenced the upgrading and value capture outcomes of these contract R&D firms in the two sectors. There are five main findings. First, the two sectors differed significantly in terms of the upgrading of contract R&D firms’ activities and capabilities. More upgrading was found in chemistry-based pharmaceuticals than in ICs. Second, in both industries, lead firms utilized a range of strategies to control and limit upgrading and value capture by contract R&D firms. Third, level of R&D uncertainty (risk) and lead firms’ level of market access control informed the strategies of lead firms. Lead firms generally adopted strategies to limit upgrading by contract R&D firms except in two situations: where R&D risk was high so that lead firms wished to offload costly risks onto contract R&D firms and where lead firms had significant market access control to limit value capture by upgrading contract R&D firms. Fourth, the strategies to limit upgrading included minimizing the flow of information possible in modular linkages and discouraging IP development by contract R&D firms. Fifth, the lead firm strategies to limit value capture included limiting upgrading and thus any associated potential value capture, enhancing lead firm bargaining leverage, and controlling market access via established market channels and continual engagement with regulatory agencies in relevant markets.

Quality competition and worker training

AbstractWe examine the relationship between firm‐sponsored training and product quality competition within a model of worker–firm bargaining. We develop a quality‐adjusted monopolistically competitive setting in which firms invest in training to an extent that reflects: (i) the costs of training, (ii) the extent to which training increases product quality, and (iii) the extent to which product quality increases final product demand. We identify the conditions under which greater sensitivity between product demand and quality results in greater firm‐sponsored training.

Hours and wages: A bargaining approach

In a recent paper, Bick et al. (2022) show the presence of a hump-shaped relationship between hours and hourly wages with a maximum around 50 h worked. We show that a model with fixed labor costs where workers and firms bargain in wages and hours can help explain this non-linear relationship. Also, a quantitative version of the model is able to match the empirical hourly-wage to hours worked relationship estimated by those authors for the US.

Local institutions, union wage effects and native–foreign wage gaps

ABSTRACT Local institutions in the shape of collective wage bargaining in firms are important for wage differences among labour of various origins. This paper considers local rent-sharing in Danish firms and finds that local wage bargaining reduces wage gaps between cross-border commuters of Danish, Swedish, German and Polish origins. Wage gaps are found to be between 6% and 12%, while individual union membership reduces the wage gap. Local peer effects, on the other hand, may increase wage gaps particularly for cross-border commuters of Polish origin, which can be interpreted as a form of local club behaviour in bargaining at the firm level.

LABOR MARKET SEARCH, INFORMALITY, AND SCHOOLING INVESTMENTS

AbstractWe develop a search and matching model where jobs can be formal or informal. Workers choose schooling and search for jobs. Firms post vacancies in each schooling market and decide the job's formality status. Upon meeting, workers and firms bargain over wages. The equilibrium size of the informal sector is an endogenous function of labor market fundamentals and institutions. We estimate the model using labor force survey data from Mexico and exploiting the exogenous variation induced by a noncontributory social program. Counterfactual experiments show that eliminating informal jobs increases schooling investments but decreases welfare for both workers and firms.

Endogenous codetermination

This research introduces endogenous codetermination in a Cournot duopoly. Unlike the received literature (Kraft, 1998), this work assumes that firms bargain with their own union bargaining units under codetermination if and only if they can choose an ad hoc bargaining effort by maximising profits (three‐stage non‐cooperative game). There are remarkable differences compared with the main findings of the exogenous codetermination literature. Indeed, there may exist asymmetric multiple (Pareto efficient) Nash equilibria in pure strategies. Mandatory codetermination, therefore, is Pareto worsening. Each firm can then use the union bargaining power as a strategic device in a Cournot setting.

Does collective bargaining influence the way the size of the firm impacts wage dispersion? Spanish evidence

PurposeThis paper analyses the relationship between wage dispersion and firm size within a “two-tier” system of collective bargaining (firm bargaining and multi-employer bargaining levels). Collective bargaining has a decisive role in setting wages in Spain, and its regulation highly limits the possibility for smaller firms to negotiate their own collective agreement.Design/methodology/approachBased on the Spanish Structure of Earnings Survey 2006, 2010 and 2014, the authors use variance decomposition in order to deeply analyse the effect of bargaining level on wage dispersion and compare the value of each decile of the distribution of wages for the purposes of identifying the quantitative differences in wage compression.FindingsIn general, the outcomes positively linked firm size and firm bargaining to wage dispersion. However, if firm size is taken into account, the effect of firm bargaining is limited among small firm workers because this type of firm is not usually covered by firm bargaining. On the other hand, the time analysis allows observing a wage compression that follows different patterns depending on firm size, compressing the higher part of the distribution in case of small firms and the lower part in case of large firms. This should be explained by the fact that wage negotiation is dependent on firm size.Social implicationsFirm size has determined firm adjustment strategies to face the recent economic crisis and allows to evaluate the impact that changes in collective bargaining can have on wage distributionOriginality/valueThere is no research that has tried to analyse the relationship between wage dispersion and firm size in a context where collective bargaining is essential to understand the wage structure. Normally, firm size plays a decisive role in wage policy given that the capacity of a company to negotiate an agreement is closely linked to its size.

Is there loss aversion in the trade-off between wages and commuting distances?

We exploit administrative data on exact commuting distances for a large sample of German employees and study the relation of commuting and wages. We focus on the question of whether job changers are loss averse in trading off wages and commuting distances. We find that the willingness to pay for a reduction of the commuting distance is at least as large as the wage increase job changers require to accept an increase in their commute by the same distance. This non-experimental field evidence contradicts the experimental finding of loss aversion and even suggests the existence of reverse loss aversion. One quarter of the positive relationship between wages and commuting can be attributed to the sorting of workers into certain firms at various distances and the remainder to a match-specific wage component that workers and firms bargain over.

Decentralized bargaining in matching markets: Efficient stationary equilibria and the core

This paper studies market clearing in matching markets. The model is non-cooperative, fully decentralized, and in Markov strategies. Workers and firms bargain with each other to determine who will be matched to whom and at what terms of trade. Once a worker-firm pair reach agreement they exit the market. Alternative possible matches affect agents' bargaining positions. We ask when do such markets clear efficiently and find that inefficiencies - mismatch and delay - often feature. Mismatch occurs whenever an agent's bargaining position is at risk of deteriorating. Delay occurs whenever agents expect their bargaining position to improve. Delay can be extensive and structured with vertically differentiated markets endogenously clearing from the top down.

Taxing the job creators: Efficient taxation with bargaining in hierarchical firms

Economists typically view personal income taxes as a tradeoff between distortionary effects on labour supply and desirable effects on the income distribution. However, when wages deviate from marginal product, there is an efficiency rationale for income taxation. In the empirically relevant setting of wage bargaining within hierarchical firms, the efficiency case for taxing the manager at the top of the firm depends on a “job-creation” effect: if wages are too low and increased labour supply allows managers to supervise larger firms and thus collect larger rents, they will work too hard to create jobs at their firm. It may then be efficient to tax the “job creators” because of their job-creation activity. If bargaining compresses the wage distribution for workers, the efficient tax schedule is V-shaped and deviates significantly from zero in a model calibrated to the U.S. income distribution. For a planner with redistributive motives, wage bargaining similarly raises optimal marginal tax rates at the top and bottom of the distribution, while decreasing them in the middle.

Beyond voluntary: state–firm bargaining over corporate social responsibilities in mining

ABSTRACTThis paper investigates how and why governments use both regulatory and extra-juridical pressures to influence what are normally considered to be the voluntary corporate social responsibility contributions of mining firms to local social and economic development that go beyond compliance with regulatory requirements. Based on a modified version of the obsolescing bargain model, the paper argues that governments opt to co-produce corporate social responsibility when they face pressures to reform the firm's relationship with society but are unable or unwilling to change the legal framework that governs it. In this regard, institutional stickiness can result in the displacement of bargaining from the formal rules and regulations that govern foreign direct investment, to the unregulated and informal practices associated with the social responsibilities of business. The argument is confirmed through a qualitative examination of state–firm relations in the mining sectors of Argentina and Peru.

Intra Firm Bargaining and Shapley Values

We study two wage bargaining games between a firm and multiple workers. We revisit the bargaining game proposed by Stole and Zwiebel. We show that, in the unique Subgame Perfect Equilibrium, the gains from trade captured by workers who bargain earlier with the firm are larger than those captured by workers who bargain later, as well as larger than those captured by the firm. The resulting equilibrium payoffs are different from those reported in Stole and Zwiebel as they are not the Shapley values. We propose a novel bargaining game, the Rolodex game, which follows a simple and realistic protocol. In the unique no-delay Subgame Perfect Equilibrium of this game, the payoffs to the firm and to the workers are their Shapley values.

Intra Firm Bargaining and Shapley Values

The paper revisits the problem of wage bargaining between a firm and multiple workers. We show that the Subgame Perfect Equilibrium of the extensive-form game proposed by Stole and Zwiebel (1996a) does not imply a profile of wages and profits that coincides with the Shapley values as claimed in their classic paper. We propose an alternative extensive-form bargaining game, the Rolodex Game, that follows a simple and realistic protocol and that, under some mild restrictions, admits a unique Subgame Perfect Equilibrium generating a profile of wages and profits that are equal to the Shapley values. The vast applied literature that refers to the Stole and Zwiebel game to give a game-theoretic foundation to the use of the Shapley values as the outcome of the bargain between a firm and multiple workers should instead refer to the Rolodex game.

Collective bargaining, wage dispersion and the economic cycle: Spanish evidence

AbstractThis research analyses the effect of a ‘two-tier’ system of collective bargaining (firm bargaining and multi-employer bargaining levels) on wage dispersion in Spain. The effect of collective bargaining on the two main concepts that make up wages (the contractual or basic-bargained wage, and the wage cushion) are analysed during the last period of the upward cycle (2002–2006) and the beginning of the global financial crisis (2006–2010). The wage cushion is defined as the difference between the earned wage and the basic-bargained wage. The results show that workers covered by firm bargaining experienced greater wage dispersion than workers covered by multi-employer bargaining. On the other hand, wage dispersion for all workers decreased during the analysis period, mainly during the first stage of the current economic crisis, and particularly among workers covered by multi-employer bargaining. Both the decreasing relevance of the wage cushion in actual wage formation and its reduced dispersion make it possible to explain this wage compression.

The Nash bargaining solution in vertical relations with linear input prices

We re-examine the Nash bargaining solution when an upstream and N downstream firms bargain over a linear input price with unobservable contracts. We show that the profit sharing rule is given by a simple and instructive formula which depends on the parties’ disagreement payoffs, the profit weights in the Nash-product and the elasticity of derived demand. A downstream firm’s profit share increases in the equilibrium derived demand elasticity which in turn depends on the final goods’ demand elasticity.

Profit Tax Evasion under Wage Bargaining Structure

AbstractThis paper deals with the neutrality of profit taxes levied on firms as well as the implications of tax evasion in economies with right-to-manage wage formation and efficient bargaining, respectively. Contrary to the outcome under competitive labor markets, we show that profit taxes are not neutral and the firm’s tax evasion decision is not separable from its production decision under right-to-manage wage formation, where a trade union and firm bargain over the wage rate (except in the special case of a monopoly union). A similar conclusion follows from an efficient bargaining model, where a trade union and firm bargain over both the wage rate and employment. In addition, wage bargaining plays an important role in determining the optimal profit tax and the enforcement policy.

Pass-Through along the Supply Chain

This paper analyzes the determinants of pass-through that are specific to vertical relationships between wholesalers and retailers. Fluctuations in input costs (due to, e.g., exchange rate shocks) are transmitted first to the wholesale price, and then to the retail price. The type of vertical agreement firms contract upon as well as their relative bargaining power are identified as major determinants of pass-through rates. The relationship between pass-through rates at the wholesale and retail levels is also investigated. Finally, the result of Bresnahan and Reiss (1985) on markup ratio is extended to the case where firms bargain over the wholesale price.

Intra Firm Bargaining and Shapley Values

Intra Firm Bargaining and Shapley Values

Intra Firm Bargaining and Shapley Values

The paper revisits the problem of wage bargaining between a firm and multiple workers. We show that the Subgame Perfect Equilibrium of the extensive-form game proposed by Stole and Zwiebel (1996a) does not imply a profile of wages and profits that coincides with the Shapley values as claimed in their classic paper. We propose an alternative extensive-form bargaining game, the Rolodex Game, that follows a simple and realistic protocol and that, under some mild restrictions, admits a unique Subgame Perfect Equilibrium generating a profile of wages and profits that are equal to the Shapley values. The vast applied literature that refers to the Stole and Zwiebel game to give a game-theoretic foundation to the use of the Shapley values as the outcome of the bargain between a firm and multiple workers should instead refer to the Rolodex game.