Working Paper: CEPR ID: DP6644
Authors: Robert J. Garybobo; Touria Jaaidane
Abstract: We model cooperation between an employer and a workers' union as an equilibrium in an infinitely repeated game with discounting and imperfect monitoring. The employer has private information about firm profitability. The model explains the incidence and duration of strikes, as well as the employer's outsourcing (or partial lock-out) decisions. By means of an effort variable, it also extends the theory to account for worker resistance phenomena, taking the form of low effort on the part of employees. Strikes appear as random equilibrium phenomena, during finite-duration, but recurrent phases of play, triggered by the occurrence of a low-profitability state. We show that high-effort and high-pay cooperative agreements between the union and the employer can be supported as perfect public equilibria of the repeated game, if players are patient enough, but only at the cost of random reversions to noncooperative equilibrium in which strikes, low effort, low pay, and outsourcing take place.
Keywords: Imperfect Monitoring; Industrial Relations; Mechanism Design; Public Employment; Repeated Games; Theory of Strikes
JEL Codes: C73; D2; J45; J5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Employer's private information about firm profitability (D22) | Incidence and duration of strikes (J52) |
| High effort and high-pay cooperative agreements (C71) | Cooperative outcomes (P13) |
| Cooperative outcomes (P13) | Noncooperative equilibria characterized by strikes (C72) |
| Employer's decisions regarding pay raises and outsourcing (M51) | Occurrence of strikes (J52) |
| Economic conditions (E66) | Strike activity (J52) |