On the Employment Effect of Manning Rules

Manning rules specify the number of workers assigned to a machine or operation. If unions and firms bargain over manning rules (instead of only over wages), employment rises for a given capital stock. In this paper, we extend the analysis to endogenous capital formation. Our analysis suggests that a small positive employment effect can be observed at the firm level and - for values of the elasticity of substitution between labour and capital below unity - also at the aggregate level. Moreover, we address the issue of McDONALDS and SOLOW's [1981] conjecture, which states that manning rules and efficient contracts are close substitutes.