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Discussion Paper Details

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Title: On the Foundations of Wage Bargaining

Author(s): Paola Manzini and Dennis J. Snower

Publication Date: November 1996

Keyword(s): Bargaining, Insider-outsider, Labour Turnover Costs and Outside Option

Programme Area(s): Human Resources

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.

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Bibliographic Reference

Manzini, P and Snower, D. 1996. 'On the Foundations of Wage Bargaining'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=1514