Solidaristic Wage Bargaining
87
receive the outside option), while wages in
different plants vary according to the plant's
age. With Solidaristic bargaining, wages are
constant across plants but rising over time at
the same rate as productivity growth.
Decentralized and
Solidaristic Bargaining Compared
The effects of the wage profiles implied by
the two bargaining systems differ in terms of
the threshold wage share at which the union
wage exceeds workers' outside option, the
exit of old plants, the entry of new plants,
industry profits and average industry wages.
We discuss each in turn.
The Threshold Wage Share
In either bargaining system, the union has
no impact on wages if the union's share, tt, is
so small that the bargaining outcome is less
than or equal to the outside option. With
local bargaining, wages in all plants remain
unaffected by collective bargaining if wor-
kers' share of the revenues in the most pro-
ductive plants is less than the outside option.
With solidaristic bargaining, wages remain
unaffected if workers' share of the average
revenues is less than the outside option.
Since the productivity in new plants is hig-
her than the average, the threshold wage sha-
re is lower with local bargaining.
Plants ' RetirementAge
It is apparent from either Figure 1 or Figure
2 that solidaristic bargaining shortens the
lifespan of plants in the industry. By preven-
ting the wage from falling to r as productivi-
ty declines relative to the industry average,
marginal plants are pushed out of the market
with solidaristic bargaining. In comparison
to decentralized bargaining, solidaristic bar-
gaining generally lowers the average age of
plants in operation, thereby increasing the
average productivity of the industry.
While increasing productivity is an
important goal, productivity increases that
occur through reductions in employment
may signify a reduction in welfare rather
than an improvement. Thus, we need to
investigate how the different bargaining sys-
tems affect the number of new plants that
enter each period.
The Number of New Plants Built
The bargaining system affects firms' decision
to build new plants through its effect on the
market value of new plants. The higher is the
market value of new plants, the greater is the
number of new plants that will be built each
period. Solidaristic bargaining affects the
future discounted earnings of the firm in
countervailing ways, relative to decentralized
bargaining. On the one hand, solidaristic
bargaining holds down wages in plants when
they are relatively new, as illustrated in
Figure 2. On the other hand, solidaristic bar-
gaining increases the wage relative to local
bargaining when plants are older. In additi-
on, solidaristic bargaining shortens the peri-
od over which firms can expect to maintain a
plant in operation. Thus, it is not evident
how entry is affected.
It can be shown (see Moene and
Wallerstein 1995) that the impact of the bar-
gaining system on the number of entrants
depends on the workers' share of the firms'
revenues, as illustrated in Figure 3. In both
bargaining systems, the market value of new
plants is a declining function of tt when ɑ is
large enough to affect wages. Indeed, the
value of new plants goes to zero as α goes to
one with either local or solidaristic bargai-
ning. But because the threshold wage share is
lower with decentralized bargaining, there is
a range of values of α where decentralized
bargaining depresses the value of new plants