WAGE BARGAINING WITH TIME-VARYING THREATS

We study wage bargaining in which the union is uncertain about the fir m's willingness to pay and threat payoffs vary over time. Strike payof fs change as replacement workers are hired, as strikers find temporary jobs, and as inventories or strike funds run out. We find that bargai ning outcomes are substantially altered if threat payoffs vary. If dis pute costs increase in the long run, then dispute durations are longer , settlement rates are lower, and wages decline more slowly during the short run (and ma even increase). The settlement wage is largely dete rmined from the long-run threat, rather than the short-run threat.