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: www.cepr.org/pubs/dps/DP170.asp

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.