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Inventories and Wage Bargaining

Authors
Journal
Journal of Economic Theory
0022-0531
Publisher
Elsevier
Publication Date
Volume
75
Issue
2
Identifiers
DOI: 10.1006/jeth.1996.2282

Abstract

Abstract A union is assumed to make a sequence of “take it or leave it” wage demands to a firm which produces a storable good. Equilibrium has the following properties: 1. The firm chooses to accumulate inventories even though there is no uncertainty. 2. The accumulation of inventories lowers wages by reducing the rents from further production and therefore harms the union without benefitting the firm. 3. There can be intermittent work stoppages (i.e., strikes) even though there is no uncertainty. These work stoppages limit the firm's inventories and hence raise wages. Journal of Economic LiteratureClassification Numbers: C78, C73, J31.

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