The Ambiguity of Strike Replacement Legislation and Wages: A Sequential Investment-Bargaining Model

Abstract

The effect of strike replacement, or striker replacement, bans has been theoretically modeled using private information bargaining models which predict that strike replacement restrictions will increase wages. These models, however, assume that the capital stock is constant. This paper develops a sequential model in which a capital investment decision precedes wage bargaining. Strike replacement legislation which increases labor's bargaining power and reduces the productivity of capital during a strike can cause reduced investment. Consequently, the theoretical effect of strike replacement restrictions on wage outcomes is ambiguous. This model can also be applied to other public policy debates in labor relations.

JEL Classification: J5