Firm Bargaining Research Articles

Right-to-Work Laws and Financial Leverage

High leverage can be used to improve a firm's bargaining position with unions. I find that this use of leverage in the United States is concentrated in states without right-to-work (RTW) laws. The use of high leverage by unionized firms in these states is associated with high market-to-book ratios and is more likely when shareholder and manager interests are aligned through compensation contracts. I confirm these findings by examining the adoption of RTW laws in Oklahoma, as well as presidential and congressional elections. Moreover, I confirm the importance of RTW laws using cash balances instead of leverage.

Gender-oriented statistical discrimination theory: Empirical evidence from the Hong Kong labor market

This paper proposes a simple search model to shed light on the role of aggregate fertility as a form of statistical discrimination against young working women in the labor market. Our proposed theory assumes that workers generate identical production value that does not differ by gender. When matched with a firm, the worker and the firm bargain over wage rates. Since female pregnant workers receive wages during maternity leave and generate no production value, a matched pair with a female worker generates lower expected profit to the firm. Rent-sharing ensures a male worker to be paid more than a female worker even with the absence of overt discrimination, thus resulting in statistical discrimination against female workers. Using the 5% random subsamples of census and by-census data in Hong Kong in 1996, 2001, and 2006, the study provides unequivocal evidence that age-specific fertility rates exert negative impact on female wages, after controlling for other observable characteristics. More importantly, the negative effects of fertility on women's earnings are notably greater in female dominated occupations, whereas similarly situated men are unaffected. Since fertility rates tend to be increasing with age during the early stage of women's work careers, our theory partially explains why the gender gap rises with age.

Governance, type of blockholder, and negotiating power in takeovers

Purpose – Agency theory suggests that if managers are not monitored, takeover negotiations may be contaminated by agency conflicts, which may weaken a firm's bargaining position. This paper argues that some blockholders are more effective monitors than others, and tests whether the negotiating power of a target or bidder is influenced by their respective blockholder composition. The paper aims to discuss these issues. Design/methodology/approach – This paper classifies target and bidder outside blockholders as either aggressive monitors or moderate monitors, and tests whether the degrees of monitoring effectiveness influence a firm's share of the total wealth created by the takeover (a proxy for bargaining power). Findings – This paper finds that firms that have the types of outside blockholders with a greater tendency to monitor managers elicit higher takeover gains. This suggests that negotiating power in takeovers is conditioned on the types of blockholders that monitor the target and bidder. The results support the premise that better monitoring leads to higher gains for shareholders in a takeover. In particular, the findings suggest that the greater the tendency of outside blockholders to monitor managers, the lower the level of takeover-related agency conflicts and the stronger a firm's relative bargaining power. Originality/value – These findings imply that agency conflicts on either side of a takeover bid may be reduced by better monitoring, but especially among bidders.

Firm Level Bargaining and Volatility in Italian Firms

Firm Level Bargaining and Volatility in Italian Firms

Efficiency in a search and matching model with right-to-manage bargaining

In a search and matching model with right-to-manage bargaining, matched workers and firms bargain over wages, given the firm’s demand schedule for hours per worker. Wages and hours per worker are determined as if they are determined in a competitive labor market with a distortion to wage markups. A positive inefficiency gap in the labor market diminishes workers’ effective bargaining power relative to firms, because firms can adjust labor input and wage schedule via the intensive margin. The Hosios condition does not necessarily hold even when workers’ actual bargaining power is equal to the unemployment elasticity of matches.

Unions-the Bigger, the Worse? Centralization and the Scope of Bargaining

This paper studies welfare effects of union bargaining (de-) centralization in a two-sector economy. We present a model with union membership dynamics where the wage in the first sector is the result of either decentralized bargaining at the firm level or centralized bargaining at the sector level. The workers’ outside option is employment in the second sector, where wages adjust to clear the labor market. We show that the scope of bargaining has a decisive role in the discussion on the impact of bargaining decentralization on social welfare. Our results imply that decentralization increases welfare if unions and firms bargain over both wage and employment. Contrary, if only the wage is bargained over, centralization is welfare-increasing. Comparative static examinations complement our analysis.

Union–firm bargaining: Order of play and efficiency

This paper shows that a modified alternating offers Rubinstein model can provide a Pareto superior outcome in the context of the right-to-manage union–firm bargaining. Two examples of bargaining protocols that yield a superior outcome are provided. In the first example, the parties engage in a game in which the order of play is determined as part of the bargaining. We show that the game has a unique subgame perfect equilibrium in which the firm always moves first in the wage bargaining game. The equilibrium wage is, therefore, unique. In the second example, we examine a two-part-tariff alternating offers bargaining protocol, where the parties bargain over the wage and transfer payments. We show that this bargaining protocol has a Pareto efficient, unique subgame perfect equilibrium. Thus, although the parties do not bargain over the level of employment, the outcome under this protocol is, nevertheless, socially optimal.

On-the-Job Search and Labor Market Equilibrium

On-the-job search is something we all do from time to time. Indeed, a significant percentage of job changes made by workers involves no interim unemployment. The object of the study is to develop and analyze a labor market model where unemployed workers and firms bargain over the wage paid if employment is accepted. Any employed worker can choose to search for another job but only at a cost. It will be shown that in such an environment the bargaining set is not convex. Nevertheless, utilizing a strategic bargaining game we show there is a unique bargaining outcome which may involve a lottery. The resulting market equilibrium exists and if the cost of search is low enough the resulting equilibrium is where some employees search on-the-job even in the case where both workers and firms are homogeneous.

The Employment (and Output) of Nations: Theory and Policy Implications

I study the effects of product and labor market frictions in a dynamic general equilibrium model with a three-states representation of the labor market. Firms bargain with unions over wages and employment levels. This generates unemployment. Households take the associated unemployment risk as given in making participation and consumption-saving decisions. Unemployment harms output because it inserts a wedge between labor supply (participation) and employment. New firms make entry decisions based on expected future profitability as determined by macroeconomic conditions. The model produces dynamics consistent with the long-run trends exhibited by the US and EU15 economies over the last 40-50 years. It also features feedback mechanisms linking the two markets that amplify the adverse effects on output of labor and product market frictions. These multiplier effects have interesting policy implications.

Union Power as a Reason for Europe Not to Introduce Experience Rating?

Theoretical economic literature dealing with the financing of unemployment insurance finds that experience rating helps to solve the externality caused by individually efficient but socially inefficient dismissals and hence reduces unemployment. This is, however, found in models where workers and firms bargain over wages individually. Introducing unionized wage bargaining - which at least in continental Europe is a defining feature of the economy - may reverse the result. This paper provides an example showing that wage setting by a monopoly union can result in an increase in unemployment

On the role of patience in collusive Bertrand duopolies

This paper analyzes the role of patience in a repeated Bertrand duopoly where firms bargain over which collusive price and market share to implement. It is shown that the least patient firm's market share is not monotone in its own discount factor.

Concentration‐Based Merger Tests and Vertical Market Structure

Abstract In this article I derive a concentration measure for markets with multiple vertical segments. I derive the measure using a model of vertical contracting in which upstream and downstream firms bargain bilaterally and may be integrated. The resulting vertical Hirschman‐Herfindahl index provides a measure of the degree of distortion in the vertical chain as a result of both the horizontal concentration in a segment and the degree of its vertical integration. This measure distinguishes between the differing competitive impacts of upstream and downstream competition, establishes the relative size of integrated firms in each segment, and provides a quantitative threshold test for vertical mergers.

The firm rules: Multinational corporations, policy space and neoliberalism

This paper examines the constraints on state policy autonomy engendered by globalisation. It evaluates the three major competing hypotheses on the decline in the state's inability to bargain with multinational corporations for the purpose of promoting economic development in light of two case studies of state – firm bargaining. The case studies are drawn from the mining sectors in Argentina and Chile in the late 1990s.

ENDOGENOUS COSTS AND PRICE‐COST MARGINS: AN APPLICATION TO THE EUROPEAN AIRLINE INDUSTRY*

This paper allows for endogenous costs in the estimation of price cost margins. In particular, we estimate price‐cost margins when firms bargain over wages. We extent the standard two‐equation set‐up (demand and first‐order condition in the product market) to include a third equation, which is derived from bargaining over wages. In this way, price‐cost margins are determined by wages and vice versa. We implement the model using data for eight European airlines from 1976–1994, and show that the treatment of endogenous costs has important implications for the measurement of price‐cost margins and the assessment of market power. Our main result is that observed prices in Europe are virtually identical to monopoly prices, even though observed margins are consistent with Nash behavior. Apparently, costs had been inflated to the point that the European consumers were faced with a de facto monopoly prices.

On-the-job search and strategic bargaining

This paper studies wage bargaining in a simple economy in which both employed and unemployed workers search for better jobs. The axiomatic Nash bargaining solution and standard strategic bargaining solutions are inapplicable because the set of feasible payoffs is nonconvex. I instead develop a strategic model of wage bargaining between a single worker and firm that is applicable to such an environment. I show that if workers and firms are homogeneous, there are market equilibria with a continuous wage distribution in which identical firms bargain to different wages, each of which is a subgame perfect equilibrium of the bargaining game. If firms are heterogeneous, I characterize market equilibria in which more productive firms pay higher wages. I compare the quantitative predictions of this model with Burdett and Mortensen's [1998. Wage differentials, employer size and unemployment. International Economic Review 39, 257–273.] wage posting model and argue that the bargaining model is theoretically more appealing along important dimensions.

Concentration-Based Merger Tests and Vertical Market Structure

This paper derives a concentration measure for markets with multiple vertical segments. The measure is derived using a model of vertical contracting where upstream and downstream firms bargain bilaterally and may be integrated. The resulting vertical Hirschman-Herfindahl Index provides a measure of the degree of distortion in the vertical chain as a result of both horizontal concentration in a segment and the degree of vertical integration. Utilization of this measure would allow competition authorities to distinguish between the differing competitive impacts of upstream and downstream competition, the relative size of integrated firms in each segment, and to provide a quantitative threshold test for vertical mergers.

WAGES, HOURS OF WORK AND JOB SATISFACTION OF RETIREMENT-AGE WORKERS*

I analyse, theoretically and empirically, the effects of pension benefits, family conditions and the personal characteristics of older individuals on their labour supply, wages, hours worked and job satisfaction, in the framework of the Nash bargaining condition whereby an older worker and a firm bargain over employment conditions such as wages, hours of work and job investment. It is stressed that as workers become older they tend to give greater priority to the number of hours worked, work environment and type of job than to wages, and try to improve these through job investment, even at the cost of lower wages.

Competing or Colluding in a Stochastic Environment

This paper analyses collusion by innovative firms and the role of patents in a continuous-time real options framework. A patent-investment race model is formulated in which innovative firms bargain and reach collusive agreements. It is shown that, while collusion always delays innovation, it does not necessarily delay competition. Depending on a number of factors, collusion can actually accelerate competitio

A political economy model of immigration quotas

The paper examines a model in which the number of immigrants allowed into a country is the outcome of a costly political lobbying contest between a firm and a union. The union and the firm bargain over the wage of natives after the number of immigrants that will be permitted is known. I assume that the lobbying contest is an all-pay auction (i.e., the lobbyist with the higher effort wins with certainty). Comparative statics results are derived to show how the reservation wage of immigrants, the price of the firm’s product, the size of the union and the cost of lobbying affect immigration quotas and the post-immigration wage of natives.

Union–Firm Bargaining, Productivity Improvement and Endogenous Growth

AbstractThis paper presents a growth model with two sectors. In the high‐tech sector, R&D increases productivity and union–firm bargaining determines wages, but in the traditional sector there are neither R&D nor labour unions. The government is able to regulate union bargaining power. The main results are as follows. Because firms try to escape wage increases through the improvement of productivity by R&D, the increase in union bargaining power boosts R&D and growth. It is welfare enhancing to strengthen (weaken) unions when the growth rate is below (above) some critical level. A specific rule is presented for when de‐unionization is socially desirable.