In Discussion Paper No. 1361, Melvyn Coles and Andrew Hildreth examine the impact of the 1980 and 1982 Employment Acts on wage bargains between union workers and firms. This legislation is seen to affect a firm’s ability to sell out of inventory. The paper analyses the Rubinstein bargaining game with random alternating offers when the firm has an inventory of finished goods. If the firm can sell that inventory during a strike, the authors show that the negotiated wage is a decreasing function of the inventory stock. Conversely, if the union can form an effective picket line, which blockades firm deliveries during a strike, the negotiated wage is higher and increases with the inventory stock. Noting that the 1980 and 1982 Employment Acts changed unions’ ability to form effective picket lines, the empirical section tests these theoretical predictions using a panel of firms over the period 1972–90. It was found that inventory levels did not have a significant effect on unionised firm wages prior to 1982, but have a significantly negative effect thereafter. For union firms post-legislation, and for non-union firms generally, the wage elasticity with respect to inventories is –0.1. Defining the mean union wage differential as the difference between the union and non-union mean predicted wage over the non-union predicted wage, the figures show that the average union wage differential fell from 2.6% to 0.6% over 1974–81 and 1982–90.

Wage Bargaining, Inventories, and Union Legislation
Melvyn G Coles and Andrew K G Hildreth