Collective Bargaining Under Non-Binding Contracts

Abstract

We introduce collective bargaining in a static framework where the firm and its risk-neutral employees negotiate over wages in a non-binding contract setting. Our main result is the equivalence between the non-binding collective equilibrium wage-employment contract and the equilibrium contract under binding risk-neutral efficient bargaining. We also demonstrate that our non-cooperative equilibrium wages and profits coincide with the Owen values of the corresponding cooperative game with the coalitional structure that follows from unionization.

Keywords: collective bargaining, union, firm, bargaining power, non-binding contract

JEL Classification: C71, J51, L20