Strikes, Wages and Private Information: An Empirical Study


Private information models of strikes suggest that the
strike is used as an information revealing device by the union in
the presence of asymmetrical information. A testable prediction
of these models is that there is a concession schedule which maps
out a negative relationship between wages and strikes. In this
paper a concession schedule is estimated using a unique micro
data set of about 3000 contracts over the period 1970-1981.
Unlike previous wage determination studies, which use the
percentage change in nominal wages as the dependent variable,
this study uses the average expected real wage over the length of
the contract as the dependent variable as this is the wage that
is of interest to the negotiating parties. In order to estimate
the concession schedule it is necessary to control for all
observable variables which effect the level of wages and strike
activity. The most important determinants of the real wage are
found to be bargaining pair specific fixed effects and a general
time trend. Wage settlements at other firms in the sane industry
prior to the negotiations were also important. The estimated
concession schedule has a negative slope as predicted by the
private information models. The concession schedule is fairly
flat -— the real wage decreases by only 3% after a strike lasting
100 days.

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American Economic Review, Vol. 79, No. 4, September 1989
Working Papers