Working Paper: CEPR ID: DP1514
Authors: Paola Manzini; Dennis J. Snower
Abstract: This paper provides strategic foundations for the insight that the bargaining power of employees depends on the firm?s labour turnover costs. The analysis shows how these costs determine the firm?s degree of substitutability between two sets of wage negotiations: (i) those the firm conducts with its incumbent employees; and (ii) the alternative negotiations it could conduct with new job seekers. In this context, labour turnover costs not only influence the negotiators? alternatives to bargaining (i.e. the negotiators? fall-back positions and outside options); they affect the nature of the bargaining process itself. This approach leads to a new theory of wage determination.
Keywords: bargaining; outside option; insider-outsider; labour turnover costs
JEL Codes: C78; J31; J32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| labor turnover costs (J63) | substitutability between negotiations with insiders and outsiders (L14) |
| labor turnover costs (J63) | bargaining power of employees (J52) |
| labor turnover costs (J63) | wage outcomes for insiders (J31) |
| labor turnover costs (J63) | long-term employment relationships or short-term employment (J63) |
| labor turnover costs (J63) | involuntary unemployment for outsiders (J68) |