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Bargaining Theory of Wages

According to the bargaining theory of wages: 1) Wages, hours, and working conditions are determined through bargaining between workers/unions and employers. 2) Each side aims to reach an agreement but wants one as favorable to themselves as possible. 3) A party's bargaining power depends on the attractiveness and credibility of their outside options, as well as the value of options inside the negotiation.

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410 views7 pages

Bargaining Theory of Wages

According to the bargaining theory of wages: 1) Wages, hours, and working conditions are determined through bargaining between workers/unions and employers. 2) Each side aims to reach an agreement but wants one as favorable to themselves as possible. 3) A party's bargaining power depends on the attractiveness and credibility of their outside options, as well as the value of options inside the negotiation.

Uploaded by

endingcooper
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd

Bargaining Theory of Wages

Compensation Management
Kevin Dueñas 3CLM
Bargain
 An advantageous purchase, esp. one
acquired at less than the usual cost.
 An agreement between parties
settling what each shall give and take
or perform and receive in a
transaction.
The bargaining theory of wages
 John Davidson
 Wages, hours and working conditions
are determined by 2 bargaining
power
 Workers or unions
 Employers
 The main issue that confronts the parties in
a bargaining situation is the need to reach
agreement over exactly how to co-operate.
 Each player would like to reach some
agreement rather than to disagree and not
reach any agreement, but each player
would also like to reach an agreement that
is as favorable to him as possible.
 A party’s outside option enhances her
bargaining power if and only if it is
attractive and credible.
 A party’s bargaining power is higher the
larger is her inside option, provided that all
negotiators’ outside options are not
attractive enough.
Employers
 Employers were in a better position to
unify their opposition to employee
demands.
 Employers were also able to
withstand the loss of income for a
longer period than could the
employees.
Workers and Unions
 Determined by the strength of the
workers and unions:
 basic wages
 fringe benefits
 job differentials
 individual differences

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