DP170 Regret and Jubilation in Union Wage Bargaining

Author(s): Michael Beenstock
Publication Date: March 1987
Keyword(s): Collective Bargaining, Jubilation Effect, Labour Markets, Regret Effects, Unions, Utilitarian Assumption, Wages
JEL(s): 026, 824, 831, 832
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=170

A theoretical model of collective wage bargaining is developed in which unions set wages and employers decide employment. A novel feature of the model is that the conventional expected utility calculus is replaced by one in which regret from failed wage bargains and jubilation from successful ones influence decision-making under uncertainty. This gives rise to a series of wage bargaining rounds in which collectively determined wage rates rise and employment falls. This dynamic behaviour is not implied by conventional analyses.