Strikes as the 'Tip of the Iceberg' in a Theory of Firm-Union Cooperation

45 Pages Posted: 5 Jun 2008

See all articles by Robert J. Gary-Bobo

Robert J. Gary-Bobo

Université Paris I Panthéon-Sorbonne; CREST ENSAE; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Touria Jaaidane

University of Cergy-Pontoise - THEMA; University of Lille I; Institut Universitaire de France

Date Written: January 2008

Abstract

We model cooperation between an employer and a workers' union as an equilibrium in an infinitely repeated game with discounting and imperfect monitoring. The employer has private information about firm profitability. The model explains the incidence and duration of strikes, as well as the employer's outsourcing (or partial lock-out) decisions. By means of an effort variable, it also extends the theory to account for worker resistance phenomena, taking the form of low effort on the part of employees. Strikes appear as random equilibrium phenomena, during finite-duration, but recurrent phases of play, triggered by the occurrence of a low-profitability state. We show that high-effort and high-pay cooperative agreements between the union and the employer can be supported as perfect public equilibria of the repeated game, if players are patient enough, but only at the cost of random reversions to noncooperative equilibrium in which strikes, low effort, low pay, and outsourcing take place.

Keywords: Imperfect Monitoring, Industrial Relations, Mechanism Design, Public Employment, Repeated Games, Theory of Strikes

JEL Classification: C73, D2, J45, J5

Suggested Citation

Gary-Bobo, Robert J. and Jaaidane, Touria and Jaaidane, Touria, Strikes as the 'Tip of the Iceberg' in a Theory of Firm-Union Cooperation (January 2008). CEPR Discussion Paper No. DP6644, Available at SSRN: https://ssrn.com/abstract=1140573

Robert J. Gary-Bobo (Contact Author)

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Touria Jaaidane

University of Lille I ( email )

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