Wage bargaining, inventories, and union legislation

This paper analyses a strategic bargaining game where the firm may or may n ot be able to sell out of its inventory of finished goods during a strike. Firms and the union are both risk neutral and have the same discount rate. It is shown that the wage equilibrium corresponds to the axiomatic Nash bar gaining solution where the threatpoints are the agents' payoffs should barg aining continue indefinitely. We use the 1980 and 1982 Employment Acts to t est this theory, interpreting that legislation change as changing the firm' s threatpoint but not its bargaining power. This allows us to identify the value of the firm's threatpoint post-1982. Formal tests support the theory. Also consistent with the theory, it is found that union wages decrease wit h inventories after 1982, but not before, and that the union wage gap is sm aller after 1982.