Bargaining Power and Wage Determination: The Role of Outside Options

ABSTRACT: The paper analyses the wage bargaining process between an entrepreneur and his workforce when delays in agreement intrinsically reduce the amount of returns to be shared It is shown that the outside options of the workforce and the entrepreneur can be a systematic determinant of their bargaining power in contrast to what the Rubinstein (1982) model predicts The basic model is extended to analyse: (i) bargaining under multiple unionism; (ii) the‐ possible relationship between bargaining and efficiency wages; and (iii) under investment in workforce training.