Collective Bargaining Under Non-Binding Contracts

Sabien Dobbelaere
Vrije Universiteit Amsterdam – Department of Economics; Tinbergen Institute; Institute for the Study of Labor (IZA)

Roland Iwan Luttens
Ghent University-Universiteit Gent – Department of Social Economics

IZA Discussion Paper No. 5518


We introduce collective bargaining in a static framework where the firm and its risk-neutral employees negotiate over wages in a non-binding contract setting. Our main result is the equivalence between the non-binding collective equilibrium wage-employment contract and the equilibrium contract under binding risk-neutral efficient bargaining. We also demonstrate that our non-cooperative equilibrium wages and profits coincide with the Owen values of the corresponding cooperative game with the coalitional structure that follows from unionization.

Collective Bargaining Under Non-Binding Contracts

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