Wage bargaining under the National Labor Relations Act
Working Paper No. 04-W12
Jesse A. Schwartz and Quan Wen
ABSTRACT [article]
Sections 8(a)(3) and 8(a)(5) of the National Labor
Relations Act prohibit a firm from unilaterally increasing the wage
it pays the union during the negotiation of a new wage contract. To
understand this regulation, we study a counterfactual model where
the firm can unilaterally increase wages during contract
negotiations. Comparing this model to the case where the firm must
pay the wage from the expired contract, we show that the firm may
strategically increase the union's temporary wage to upset the
union's incentive to strike and to decrease the union's bargaining
power. Consequently, increasing temporary wages may shrink the set
of equilibrium contracts in the firm's favor. Indeed, as the union
becomes more patient, the set of equilibrium wages converges to the
expired wage, the best equilibrium outcome to the firm. We further
demonstrate that our counterfactual model is valid since our
results maintain even if the union is allowed to block the firm's
temporary wage increase.