Counter Intuitive Results in a Simple Model of Wage Negotiations

Short-term contracts and exogenous productivity growth are introduced in a simple wage bargaining model. The equilibrium utilities corresponding to militant union behaviour are independent of the contract length. The wage dynamics are linear if strike is credible (low wage shares) and nonlinear otherwise (high wage shares). The model can admit two steady state wage shares. The one under strike is not credible exceeds the one under strike is credible. A wage decrease can occur if strike is credible, but never when strike is not credible. In the limit as time between bargaining rounds vanishes only the first paradox survives. <BR><BR>