Economics Research Works

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    Wage Bargaining with Time-Varying Threats
    (University of Chicago Press, 1994) Cramton, Peter; Tracy, Joseph S.
    We study wage bargaining in which the union is uncertain about the firm's willingness to pay and threat payoffs vary over time. Strike payoffs change over time as replacement workers are hired, as strikers find temporary jobs, and as inventories or strike funds run out. We find that bargaining outcomes are substantially altered if threat payoffs vary. If dispute costs increase in the long-run, then dispute durations are longer, settlement rates are lower, and wages decline more slowly during the short-run (and may even increase). The settlement wage is largely determined from the long-run threat, rather than the short-run threat.
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    The Use of Replacement Workers in Union Contract Negotiations: The U.S. Experience, 1980-1989
    (University of Chicago Press, 1998) Cramton, Peter; Tracy, Joseph S.
    It is argued in many circles that a structural change occurred in U.S. collective bargaining in the 1980s. Strike incidence declined, dispute incidence increased, and the composition of disputes shifted away from strikes and toward holdouts. We investigate the extent to which the hiring of replacement workers can account for these changes. For a sample of over 300 major strikes since 1980, we estimate the likelihood of replacements being hired. We find that the risk of replacement is lower for bargaining units with more experienced workers, and declines during tight labor markets. The composition of disputes shifts away from strikes as the predicted risk of replacement increases. In addition, the overall level of disputes increases as a result of the shift in the composition of disputes. Based on our estimates reducing the predicted replacement risk faced by bargaining units to the pre-1982 levels would have lead to a reduction in the dispute incidence by around 5 percentage points, an increase in the fraction of disputes involving a strike by around 4 percentage points, and an increase in the strike incidence by around 0.8 percentage points.
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    ESOP Fables: The Impact of Employee Stock Ownership Plans on Labor Disputes
    (2005-09) Cramton, Peter; Mehran, Hamid; Tracy, Joseph
    By the early 1990s employee stock ownership plans (ESOPs) had become more prevalent in unionized firms than in nonunionized firms. However, little research has been devoted to examining the implications of ESOPs for collective bargaining. Ben-Ner and Jun (1996) model ESOPs as a buyout option for the union. The ownership share of the typical union ESOP, though, is significantly below 50%. In this paper, we extend the signaling model of Cramton and Tracy (1992) to allow partial ownership stakes by the union. We demonstrate that ESOPs create incentives for unions to become weaker bargainers. As a result, the model predicts that ESOPs will lead to a reduction in the fraction of labor disputes that involve a strike. We examine these predictions using U.S. bargaining data from 1970-1995. The data suggest that ESOPs do increase the efficiency of labor negotiations by reducing dispute rates and shifting the composition of disputes from more costly strikes. Consistent with improved bargaining efficiency, we find that the announcement of a union ESOP leads to a 50% larger stock market reaction as compared to the announcement of a nonunion ESOP.