Full text: Wirtschaft und Gesellschaft - 1993 Heft 4 (4)

Wirtschaft und Gesellschaft 1 9. Jahrgang (1 993), Heft 4 
The structure of bargairring might influence economic performance by 
affecting the union's wage demands. This we discuss in Section 2 .  In Sec­
tion 3, we briefly examine the other side and review how the level of bar­
gairring may alter the optimal wage from the employers' point of view. 
Alternatively, the structure of bargairring may influence economic out­
comes by altering the relationship between given wage demands and de­
cisions regarding the pace of work, employment and investment. This is 
the topic of Section 4 .  Section 5 concludes the paper. 
2. The Level of Bargaining and Union Wage Aspirations 
The simplest framework for analyzing the effect of wage-setting insti­
tutions on wages and employment is to consider what would happen if 
unians could set wages unilaterally. Of course, neither unians nor em­
ployers get everything they want in collective bargaining. Yet, it is rea­
sonable to suppose (and easy to capture in a model) that there is a 
straightforward relationship between the militancy of the unions' wage 
demands and the final wage settlements. For the purpose of examining 
the determinants of the unions' preferences over wage increases and 
other goals such as employment growth, the assumption that the union 
chooses the wage is a useful simplification. 
There are two ways to capture the trade-off unians would continue to 
face if they were free to set wages as they choose. The approach followed 
by most authors is to assume that employers retain the choice over em­
ployment. In this framework, the union first sets the wage and employ­
ers subsequently adjust employment to its profit-'maximizing level. 
Thus, the constraint faced by the union is given by the firms' demand for 
labor curve. 
An alternative approach is to assume that the union chooses both the 
wage and the level of employment, subject to the constraint that profits 
must be sufficient for the firm to stay in operation (3). However, labor 
contracts rarely include specific employment levels, perhaps because 
firms have superior information regarding the demand for the firm's 
output. In theory, the union could induce firms to employ more workers 
than the firm would like at the prevailing wage by specifying manning 
requirements in the labor agreement. In practice, agreements covering 
manning requirements cannot be negotiated at the national level. In­
deed, work rules must be negotiated at the plant level unless the industry 
is unusually homogeneous. Thus one way that decentralized bargairring 
can differ from centralized bargairring is in the scope of the labor agree­
We return to this topic in section 4. Initially, however, we hold the co­
verage of union contracts constant in order to illuminate other differen­
ces among bargairring levels. Thus we assume throughout the following 
two sections that firms choose the level of employment unilaterally, 
whether the contract is negotiated locally or nationally. 

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