Strike and Lock-out Threats and Fiscal Policy

This paper suggests that a union's wage demands are not merely the outcome of maximizing the union's utility function subject to a labor-demand or minimum-profit constraint as the standard models of union behavior suggest, but tha t these wage demands also depend on the cost which the union can impo se on the firm through a strike and on the credibility of the strike threat. The firm, in turn, can affect the above costs by imposing a l ock out. The paper presents a model of wage formation under strike and lock-out threats and explores the implications for the effectiveness of fiscal policy. Copyright 1987 by Royal Economic Society.

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