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Discussion Paper Details

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Title: Strikes as the 'Tip of the Iceberg' in a Theory of Firm-Union Cooperation

Author(s): Robert J. Gary-Bobo and Touria Jaaidane

Publication Date: January 2008

Keyword(s): Imperfect Monitoring, Industrial Relations, Mechanism Design, Public Employment, Repeated Games and Theory of Strikes

Programme Area(s): Industrial Organization and Labour Economics

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.

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Bibliographic Reference

Gary-Bobo, R and Jaaidane, T. 2008. 'Strikes as the 'Tip of the Iceberg' in a Theory of Firm-Union Cooperation'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=6644