Question

Consider a non-strategic game between a firm and its union. The value to the firm of getting the workers back to work is $5 million. The union’s agreement value to get back to work is $5 million. The firm can hire nonunion workers, “scabs”, so their disagreement value is 1 million and the union members can find temporary employment elsewhere, making the unions disagreement value $2million.

​ The union would have a better bargaining position in the negotiations if

a. the firm can hire individual workers at a lower wage

b. the union has low wage workers who cannot afford to be off work

c. the union has a strike fund to pay workers during work stoppage actions

d. the firm can easily replace workers with machinery

Answer 1

In option a if Firm can hire individual workers at a lower wage, then it will not agree to union demands hence union will not have a better bargaining position

In option b if union has a low wage worker who cannot afford to be off work, then union will not be able to sustain the strike for long and will give up to Firms offer hence union will not have a better bargaining position

In option c if union has a strike fund to pay for workers, then union will be able to sustain the strike for long and hence will have a better bargaining position

In option d if Firm can replace workers with machinery, then it will not agree to union demands hence union will not have a better bargaining position.

Hence option c is correct