Strikes, Wages and Private Information: An Empirical Study

Abstract

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.