1 9. Jahrgang (1 993), Heft 4 Wirtschaft und Gesellschaft 4.3. Entry and Exit Until now, we have assumed that the number of firms (or plants) was fixed and that all firms shared the same technology. Yet much of the dy­ namic of capitalist economies is due to the continual entrance of new firms and the failure of existing firms. Expansions are marked by the building of new plants; contractions by the closure of old ones. Entry and exit alter more than the quantity of labor and capital employed. New entrants often bring new techniques, while departing firms leave behind the most efficient. When new techniques are embodied in new plant and equipment, technical progress entails continual turnover of plants and firms. In this way, both entry and exit change the mix of firms in the in­ dustry and increase average productivity. In this section, we investigate the way in which the pace of both entry and exit is affected by the level of bargaining (24). The difference between local bargaining and centralized bargaining at the industry or national level can be seen in Figure 1. Figure 1 displays a cross-sectional view of the industry. The top downward sloping expo­ nential curve represents revenue per worker in plants with fixed labor requirements ranked along the horizontal axis from most to least pro­ ductive. With local bargaining, wages in more productive plants are higher than in less productive plants. In the figure, locally-set wages are a fixed proportion of each plant's output per worker until the constraint that w ? r becomes binding (Fig­ ure 1 is drawn with v (e) = 0). Since wages can't fall below r, the wage in the least productive plants remains constant until one reaches the plant whose productivity is just high enough to pay w = r and make zero pro­ fits. In contrast, centralized bargaining sets a uniform wage in all plants that is a proportion of the average revenue per worker in the industry. Over time, new plants are built with the latest and most productive technology. As the average productivity of the industry or national eco­ nomy increases, workers' alternative income, r, rises, pushing the least productive plants out of the market. In this way, productivity grows through the replacement of older plants by new ones. It can be seen from Figure 1 that local bargaining raises wages in newer plants relative to centralized bargaining, since workers in new plants are able to capture a share of their above-average productivity. In contrast, local bargaining reduces wages in plants with below-average productivity. Since plants are closed when revenues per worker fall below the wage, industry-level bargaining shortens the lifespan of plants in the industry. When bargaining is centralized, the least efficient plants are prevented from lowering their wage. As a consequence, marginal plants are pushed out of the market. Thus, industry-wide bargaining lowers the average age of plants in operation, thereby increasing the average productivity of the industry. While increasing productivity is an important goal, how­ ever, productivity increases that occur through reductions in employ­ ment may signify a reduction in welfare rather than an improvement. 441