Bargaining Over Employment as a Firm Strategic Choice

This note provides a simple theoretical arguments, borrowed from the managerial incentives literature, as to why unionized firms acting non-cooperatively in the output market may find optimal to commit to bargaining outcomes off their (static) labor demand curve, hence restricting their behavior to non-profit maximizing practices. The theoretical model shows that power over labor conceded strategically to the union by the firm is negatively linked to union power over wages. Regression analyses on a cross-section of Belgian manufacturing firms seem to support the prediction that bargaining power over employment depends on product market structure and variables affecting union wages.