Endogenous Wage-Bargaining Institutions in Oligopolistic Sectors

This paper explores the endogenous emergence of wage bargaining institutions in sectors with market power. We show that asymmetries in firms’ productivity and in unions’ risk aversion and/or bargaining power may generate various degrees of centralization in wage bargaining, which are often observable in real life. In the presence of such asymmetries, a winning coalition of all the unions and (typically) the efficient firms has an incentive to establish wage bargaining centralization at the sectoral level. If productivity differences are high enough, wage bargaining may also occur at the firm level, but only regarding the efficient firms. Otherwise, a completely centralized structure prevails and the sectoral wage deal is simply confirmed by all firms and unions. However, if the sources of asymmetry “cancel out”, decentralized wage bargaining is sustained in equilibrium.