86
Karl Ove Moene and Michael Wallerstein
to be shared over the plant's lifetime. Thus,
if the outside option is fixed, the operating
life of existing plants remains unchanged
whatever the share of the quasi-rents received
by workers and average productivity in the
industry are unaltered by a change in α.
Centralized Wage-Setting
We represent Solidaristic bargaining as set-
ting a uniform wage for all plants in the
industry. In the Scandinavian context, this
assumption exaggerates the impact of solida-
ristic bargaining, since locals were regularly
able to obtain supplements to the centrally-
negotiated wage through decentralized bar-
gaining. Unions and firms, however, were
forbidden to engage in strikes or lockouts
once the central agreement was signed.
These restrictions on permissible forms of
industrial conflict limit the extent to which
local bargainers can obtain increases above
the central agreement, and allow central bar-
gainers to anticipate subsequent local wage
increases when setting the central wage
(Moene, Wallerstein and Hoel 1993:100-
ЮЗ, Hibbs and Locking 1991, Holden
1991). To simplify the presentation, we assu-
me that the control of the central negotiators
is absolute.
It is not as obvious that wage maxi-
mization is the proper assumption to make
regarding the unions' preferences at the
industry level. Union members in older
plants, in particular, would prefer to accept
lower wages if the alternative is losing their
jobs. Nevertheless, we maintain the assump-
tion that the union seeks to maximize the
wage received by union members in order to
isolate the impact of Solidaristic bargaining
holding union bargaining goals constant.
Our argument would only be strengthened if
we used the more realistic assumption that
central bargainers care about employment as
well as wages.
We maintain our prior assumption,
therefore, that the union seeks to maximize
the wage received by its members subject to
the constraint that the wage is uniform
throughout the industry. On the employers'
side, we assume that the industry association
seeks to maximize the sum of the profits ear-
ned in existing plants. As before, both sides
receive zero income during an industrial dis-
pute. Again applying standard bargaining
theory, the outcome of the labor negotiations
with Solidaristic bargaining is a wage equal to
the share OC of the average revenue per worker
in the industry as a whole (rather than the
revenues earned in the plant where the wor-
ker is employed). As before, the wage paid
must be greater than or equal to workers'
outside option, or employers will be unable
to attract labor.
By assumption, Solidaristic bargai-
ning imposes a uniform wage in all plants, as
illustrated in Figure 1. As Figure 1 indicates,
an increase in the uniform wage forces older
plants out of the market, shortening the ave-
rage life of plants in operation. In addition, a
higher wage reduces investment in new
plants. Thus, the effect of a wage increase
through Solidaristic bargaining is to increase
average productivity but reduce employment
and output.
The time path of the wage with soli-
daristic bargaining is illustrated in Figure 2.
Since the average productivity of the indus-
try increases continually over time, as new
plants are opened and old ones are closed, so
does the wage with Solidaristic bargaining.
As Figure 2 illustrates, the industry wage and
workers' outside option both grow with the
rate of productivity growth. Within our sty-
lized description local bargaining produces a
wage in each plant that is constant over time
(until the plant becomes so old that workers