Strikes and Wages: A Test of an Asymmetric Information Model

Abstract

This paper describes a simple model of labor disputes based on the hypothesis that unions use strikes to infer the profitability of the firm. The model posits the existence of a negatively sloped resistance curve between wages and strike duration. In addition, it offer a series of predictions relating wage and strike outcomes to changes in the expected profitability of the firm and changes in the alternative opportunities of striking workers. These implications are tested using data on wage outcomes, strike probabilities, and strike durations for a large sample of collective bargaining agreements.