Europea:! University In s is tite Florence, Italy
STRIKES IN EUROPE
An Attempt at Implementìng thè Bar gai ni ng Theory Model and Some EmpiricaI Tests: France, Italy and thè United Kingdom
1950- 1980
Alessandra Venturini
Department of Econotnics Doctorai Thesis, December 1981
European Universrìy In s ìitu ìe Florence, Italy
STRIKES IN EUROPE
An Attempi at Implementing thè Bargaining Theory Model and Some Em pirical Tests: France, Italy and thè United Kingdom
1950 - 1980
Alessandra Venturini
Department o f Economics Doctoral Thesis, December 1981
CONTENTS INTRODUCTION
Page
1. Def i n i n g thè Research 1
2. Criticai C o n s iderations of thè Ma i n Theories
of "Industriai Conflict" 2
3. The Line of Interpretation of thè Research 8
C H A P T E R ONE
T HE BARGAI N I N G THEORY APPROACH
1.1.1 The Origins of thè B a r g a i n i n g Theory 10
1.1.2 Deve l o p m e n t of thè B a r g a i n i n g Theory 15
1.2 The A s h e n f e l t e r and Johnson Model 18
1.3 Operational Ve r s i o n s of thè Barga i n i n g Theory 24
1.3.1 The Davies Model 24
1.3.2 Schematic P r e s e ntation of Some Operational Versions 29
1.3.3 Coinments on thè V a r i ables Used in Tests 37
1.4 Criticisms of Bargain Theo r y 39
C H A P T E R TWO
DEVELOPMENT OF A B R O A D E R B ARGAINING MODEL (Mathematical Version)
2.1.1 W i t h i n thè Liinits of thè Bargaining Theory 45
2.1.2 A Search for Trade Union Rationality 4 8
2.1.3 C l a r i f y i n g Issues with thè Holt Labour Market
Scheme 49
2.2 W i t h i n thè Limits of Ashen f e l t e r and Johnson Model 57
2.3 A d d i n g thè Trade Union D e m a n d for Employment to
thè A s h e n f e l t e r and Joh n s o n Model 63
2.3.1 F i r s t Stage: Only Emplo y m e n t is Negoti a t e d 64
2.3.2 S e cond Stage: N e g o t i a t i n g thè Wage Bill
as a Whole 73
2.3.3 T h i r d Stage: N e g o t i a t i n g Wa g e and Employment
w i t h Two D i stinct Demands for thè Trade Union 78
92 93 98
101
102 116 118121
126 126 134 138 141 141 14 8 153 155 170 C H A P T E R THREE THE O P E R A T I O N A L V E R S I O N A N D EM P I R I C A L VERI F I C A T I O N OF THE B R O A D E R BARGAI N I N G M ODELThe O p e r a t i o n a l V e r s i o n and Empirical V e r i fication of thè Broa d e r B a r g a i n i n g Model
O p e r a t i o n a l D e r i v a t ì o n of thè M a t h e matical Model
E m p i rical Verification: General Principles
Great B r i t a i n 1950-1979 Phase I (Simple Variables) Phase II (^)
• •
Phase III (AIip, R W t_ 1 • RW)
Phase IV (A Study on W a g e Claims)
Italy 1950-1980
Phase I {Simple Variables) Phase II 0J>)
Phase III (AIil», R W t_ x * BW)
Phase IV (Cassa Integrazione Guadagin)
France 1950-1980
Phase I (Simple Variables) Phase II (*M
Phase III (AI<J0 CONCL U S I O N A P P E N D I X BIBLIOGRAPHY
1. D e fining thè Research
This s tudy is an attempt to analyze labor conflicts in France, Italy, a nd thè Unit e d K i n g d o m since W o r l d W a r II.
More p r e c i s e l y it will focalize on a partic u l a r expression of labor conflicts, namely, strikes, w h i c h are defined by
H i c k s ^ as an "abstension from work, usually planned, by a
c onsiderable n u m b e r of workers." This defin i t i o n includes two elements, thè group factor and thè o r g a nizational factor, that distinguisi! strikes from -other forms of wo r k conflicts such as lateness, registered or unr e g i s t e r e d sickness, or
absenteeism. In fact, these two elements are always pres e n t
during a strike and contrast w i t h thè individuality and thè i ndividuai willingness w h i c h are p r e s e n t in other forms of c onflict usua l l y grou p e d under thè heading of "unorganized c o n f l i c t " . ^
The m o t i v a t i o n s that led to choosing strikes as thè area of study are i n t e r r e l a t e d : thè Constant manifes t a t i o n of strike p h e n o m e n a — even though their progress has been m u l t i c y c l i c a l — that has allowed thè systematic gathering of s tatistics since 1880, and thè importance of thè phenomena because of their disruptive consequences both for thè firm and for thè industry and thè economy as a whole.
(1)J. Hicks (1959), pp. 146-7.
(2) • .
The d efinition also includes thè element "abstension from work" w h i c h allows strikes to be disting u i s h e d from other forms of conflict such as w o r k to rule, produ c t i o n slow-
down, sabotage, and stopping overtime, about which, nevertheless there is no systematic s t a tistical Information.
2
-The choice of countries fell on Italy, France, and Great Brit a i n because they demonstrate similar developments of thè basic indicators of conflict, that is, relative number of strikes, relative number of strikers, and relative number of mandays lost as Tables 1, 2, a nd 3 of thè appendix s h o w . ^
The p e r i o d of time under consideration had be e n limited to thè past thirty years, thè period in w h i c h thè development of industriai relations and of thè economie syst e m allows c omparison more easily a nd in w h i c h common events (conflicts in 1969, oil price increase of 1973, two-digit world-wide inflation) makes thè study mo r e interesting.
2. Criticai Considerations of thè Ma i n Theories
of "Industriai C o n f l i c t "
The principal theories of thè industriai c onflict will be
briefly treated. Notwi t h s t a n d i n g thè variety of approaches
and thè numerous studies undertaken, these can be divided into four main lines of thought:
1. c o nsidering a strike as a prot e s t o riginated
by rapid social changes,
2. considering thè strike w i t h i n a process of
i nstitutionalization of thè conflict,
3. c o n sidering thè strike from an economie point
(2)
of vi e w w h i c h attributes its significance
to an element of bargaining process,
4. considering thè strike from an organizational-
political vi e w p o i n t w h i c h looks upon thè strike
(1)Cfr. Flora Tables 1, 2, 3.
(2) . .
In my opinion, thè te r m "economie" is inappropriate. The reason for this will be e x p lained later.
3
-as a foriti of collective action. ^
A c c o r d i n g to thè m o d e r n i z a t i o n a p p r o a c h , rapid social
changes and, in particular, high rates of industrialization which stimulate large-scale m i g r a t i o n and rapid urbanization, are
thè causes of social tension and psychic d i s location w h i c h in turn create protests of w h i c h thè strike is just one
form. This theory, w h i c h foresees thè absorption of thè
conflict in advanced industriai societies, b e tter adapts itself to a lengthy study w h i c h includes also phases of
pre-(3) capit a l i s t development.
Since W o r l d W a r II, there has been rapid social change, for example, thè p h e n o m e n o n of an industrialization and
concentration in nor t h e r n Italy followed by a mass i v e internai migration, but this rapid change can only p a r tially explain thè increase in industriai conflicts in thè 1960's and not its
It is possible to take into consideration another
theoretical a pproach called structural w h i c h analyzes thè conflict as regards to thè differentials of conflict.
These are e x p lained by thè social structure of thè community in which workers live a nd thè technical structures of thè
w o r k place. See C. Kerr and A. Siegei, 1954; J.M.
Goldthorpe, 1968; a nd D. Lockwood, 1966 w h o creates a
typology of wor k e r s w hich includes thè traditional pro- letarians (highly strike prone, high degree of job
involvement, and strong attachments to primary work g r o u p s ) , deferential workers (jobs that involve d o s e contact with superiors a nd reinforce vertical rather than horizontal l o y a l t i e s ) , and mode r n p r i v a t i z e d work e r s (high wage, mass pro d u c e d industries, new-town, home-centers, and consumption oriented life s t y l e s ) .
^ E . Durkheim, 1951; N. Smelser, 1963.
C. Kerr, F. Harbison, J. Dunlop, C. Meyers, 1960. (3)
4
-d e v e l o p m e n t . ^ In other words, this theory can explain some
waves of conflict, or even an upwards shift of thè function of strikes, but not thè development of industriai conflicts in t i m e . (2)
The second line of thought tries to interpret thè strike process as phases of a process of i nstitutionalization of conflict (D. Hibbs) in w h i c h a reduction of thè industriai
It is important to remember two parti c u l a r interpretations of this theory by H. Clegg (1970) and by A. Flander (1970) that v i e w strikes as an escape valve and as a w ay of conveying structural change at thè economie level and changes in thè institutio n a l i z a t i o n of industriai relations.
(2)
'To this theoretical line of reasoning c o u l d perhaps be related thè three hypotheses on thè contemporaneousness of conflict at thè end of thè 1960's: thè m o n e t a r i s t theory, which attributes thè increase in conflicts to thè increase
in w o r l d prices; thè theory of depressed salaries (D. Soskice, 1977) in w h i c h thè m o v i n g factor is thè wage reduction in respect to profits and thè relative increase of salary d i f f e r e n t i a l s ; a nd finally, thè gene r a t i o n a l leap theory
(E. Tarantelli, 1980) in w h i c h thè increase in education and in di f f u s i o n of information gave w a y to a n ew labor-force, to whose social and p a rticipative demands thè socio-political syst e m (not only economie) was not able to give a
satisfactory response, thereby creating frustrations leading to protest.
These three hypotheses are on thè pote n t i a l i t y of conflict (M. Regini, 1980) or, to use terms mo r e frequently used, on thè " p r o p e n s i t y ," and not thè " o p p o r t u n i t y ," to strike. In order to change these conflictual charges into manifestations of conflict, that is in strikes, it is necessary tò use a
theory that ties them to strikes themselves. It is
necessary to remember thè importance of thè above-
m e n t i o n e d theories in explaining thè contemporaneous of
conflicts at thè end of thè sixties, and in indicating political-
economic remedies to regulate thè conflict potential. One
could, perhaps, reach greater autonomy by developing a "threshold" theory of inflation, salary d i f f e r e n t i a l s , and changes in education that are able to provoke, as in thè m o d e r n i z a t i o n theory, psychic dislo c a t i o n and anomy
5
-conflict is seen as a result of a change in place of thè dis- tribution of revenues and, therefore, of thè struggie about dis- t ribution w h i c h shifts from thè economie arena (or market) to thè
politicai o n e . Thus, thè strike, w h i c h is a characteristic
instrument of thè economie arena, leaves room for other forms of p r o t e s t such as politicai demonstrations, generai strikes,
thè vote, e t c . ^ This approach focuses on industriai
relations more than on strikes and, therefore, is not adapted to analyzing work conflicts.
The so-called economie theory analyzes strikes with i n thè B a r g a i n i n g Theory, w h i c h is a m odel of rational negotiation b et w e e n M a n a g e m e n t and Trade Unions on thè wa g e level. In this approach, strikes have thè basic function of an "equilibrating m e c h a n i s m to square up thè union m e m b e r s h i p wage expectations
(2)
w i t h wh a t thè firm m ay be p r epared to pay." E x p l a i n m g
strikes then means to first estimate how much workers'
expectations exceed what thè firm m ay be p repared to pay at any given moment. P a r t i c u l a r l y , thè more w o r k e r s 1 expectations exceed thè capacity of thè firm to pay, thè h i g h e r thè proba-
bility of a strike. At thè same time, thè strength and
w illi n g n e s s to negotiate of thè two partners become thè
e x p licative variables of thè conflict function in time. These
two elements are influenced by variations in thè economie (3) cycle, of which thè unemployment rate is taken as a proxy,
(4) and by variations m thè reai wage.
{1)D. H i b b s , 1970.
O. A s h e n f e l t e r and G. Johnson, 1969. (3)A. Rees, 1952.
f 4)
6
-The fourth approach stresses thè necessity of thè o r g a nizational factor in t r a n sforming everything
c onsidered potential conflicts into reai conflicts,
strikes. Shor t e r and T i l l y , ^ thè m o s t important representa-tives of this approach, consider thè industriai conflict as a
(2)
fo r m of c ollective action taken to acquire power.
Referring back to thè concept of M. O l s o n ^ that individuals get together to purs u e common goals is problematic and
not inevitable, they emphasize that strikes take place because an o r g a nizational capacity for this type of action
e x i s t s . They d e fend thè independence and thè priority of
thè organi z a t i o n a l factor in thè m a n i f e s t a t i o n of conflict (thè s t r i k e ) . Shor t e r and Tilly, expect thè
ex p licative v a riable of strike fluctuations is thè m o b i l ization (thè o r g a nizational capacity for collective action) of thè
workers w h i c h is m e a s u r e d by thè rate of unionization and is thè ma i n indicator of thè p r o bability of success of strikes. They also consider politicai variables (changes of government, election years) important because they indicate a greater
vulnera b i l i t y of g overnment w i t h respect to thè collective demands of thè u n i o n as expressed by strikes.
S n y d e r , ^ however, explains strike fluctuation by comparing and contrasting thè economie and political- o r g a n i z a t i o n a l
approaches. However, he limited thè use of thè economie one
to cases in w h i c h collective barga i n i n g is definitely institu- tionalized, uni o n i z a t i o n is w i d e s p r e a d and stable, and thè workers
(thè union)_ as ' a legitimate interest group, are
^ R . Shorter and C. Tilly» 1974. ( 2 )
By collective a c tion is meant thè application of united resources in order to reach a common objective.
(3)
M. Olson, 1965. (4)D. S n y d e r , 1975.
7
-integrated into thè politicai system. Testing thè two models in
France, Italy, and thè U.S.A., he finds thè economie model to be highly elucidative only in thè U.S.A. from 1949 to
1970, wh e n thè a b o v e - mentioned conditions were met. In
his opinion, thè use of thè economie m odel is secondary in
respect to thè political- o r g a n i z a t i o n a l one, only
w h e n p a r t i c u l a r stable conditions exist for unionization, integration of thè union, and i nstitutionalization of its
relationship to thè p o l iticai system. He concludes by c o n
sidering thè polit i c a l - o r g a n i z a t i o n a l model as being more generally applicable and m o r e explicative than thè economie m o d e l .
On thè other hand, it is my impression that it is correct to point out thè inadequacies of thè so-called economie model which, in fact, is not able to explain sudden waves of
c o n f l i c t that originate wi t h thè big shocks thè socio-political s y stem undergoes. This is not m e a n t to say that thè expl i c a tive ability of thè m o d e l is secondary, but to imply thè
necessity of trying to incorporate into thè model some changes that have b e come an integrai part of thè very structure of
thè economie system. Often w h e n speaking of economie models,
one loses sight of their o r iginai purpose, such a s , when thè m o d e l was created, and w h a t it was intended to explain.
The economie model is a m o d e l of B a r g a i n i n g Theory that attempts to explain only wage claims and therefore wage strikes w i thin thè bargai n i n g system between M a n a g e m e n t and Trade Unions
(Trade Union leadership and Trade Union rank and file, in thè best of c a s e s ) . ^ It origi n a t e d in a p articular period of history, thè fifties, in a p a r t i c u l a r country, thè U.S., in
which strikes could be interpreted only as a wage claim. Even
if they did not include all union conflicts, they represented
8
-almost all of them. This misleading interpretation is borne out
by thè frequent tests of thè model using data on global strikes
and not only on pay-strikes. To lose sight of this coordinate
by speaking gener i c a l l y of thè economie model (I refer not only to Snyder but also to many others w ho have adopted this term) and to m a i n t a i n that it is insignificant means to under- estimate thè inappropriate context into w h i c h it has fallen and, above all, thè insufficiency of economie theory on industriai conflict.
This lacuna becomes even greater wh e n after 1968 and 1973, w i t h i n a changed economie context, thè loss of jobs and
unemployment impend upon thè workers' daily lives, and job security is a fundamental theme of European u n i o n s . ^
3. The Line of Interpretation of thè Research
The analysis w i l l be focused on thè third above-
mentioned theoretical approach and will try to go beyond thè
specified limits of thè Barga i n i n g Theory model. In
c hoosing a theoretical p a r a d i g m as a reference there is also a fundamental choice, w h i c h is not to be underestimated,
that deals w i t h thè value and significance o riginally attributed to strikes.
The politi c a l - o r g a n i z a t i o n a l p a r a d i g m clearly emphasizes thè politicai significance of strikes and thè role of unions as a legitimate interest group in thè power struggle of thè socio-political system.
T h o u g h in this context of contrasting thè various theoretical approaches to thè industriai conflict thè negot i a t i n g character of thè model to be used had been emphasized, in thè following chapter on Bargaining T h eory it will be necessary to emphasize its economie
character as game theory, from w h i c h barga i n i n g is derived, as is w i d e l y used in various disciplines.
9
-Though not negating this significance-, thè economie p a radigm
attributes importance only to thè job m a r k e t (salary, work
conditions, etc.) while at thè same time not underestimating thè fact that an increase in power and influence in thè economie system has almost direct repercussions on thè socio-political
system. The so-called struggles for power happen, according to
thè barga i n i n g paradigm, in thè economie arena to then pass on to thè politicai one (to p araphrase D. Hibbs) which, however, puts pressure on these struggles but, above all, is not a d e t ermining factor for them.
To choose thè bargaining p a r a d i g m implicitly means to
u n derestimate thè politicai connotations of strikes which, if thè strikes are of a partic u l a r intensity at certain points
(for example, thè housing and social reform strikes in Italy and Great Britain in 1969-1970), can be assimilated into a component of thè national socio-political system.
For this reason, thè comparison between thè results of thè development of thè Bargaining Theory p a r a d i g m will be rigorously m a i n t a i n e d with i n national characteristic patterns of conflict and wh e r e v e r useful, thè mo s t significant
institutional differences and changes will be explained.
^ F r o m now on thè term "bargaining model" will be used, and not economie m o d e l .
CHAPTER ONE
10
-In this chapter, thè theoretical p a r a d i g m of Bargaining Theory will be developed, from its origins in thè Game Theory
to more recent d e v e l o p m e n t s . Operational versions and
e cono m e t r i e tests will be undert a k e n c oncluding wi t n a series of criticisms on thè approach.
1.1.1 The Origins of thè Bargai n i n g Theory
The first formulations of B a r g a i n i n g Theory were d e v e l o p e d from thè appli c a t i o n of thè Game T h e o r y ^ to negotiations betw e e n m a n a g e m e n t and thè union (or w o r k e r s ) .
Game Theory, b a s e d on a perf e c t u n derstanding
of thè gains and losses thè partners will have as a result of such decision, does not se e m applicable to negotiation because thè two parties have only imperfect information on gains
r e c e i v e d from a certain choice. One can suppose that such gains
are p a r t i a l l y risks and think of m a x i m i z i n g thè mathematical e x p e c t a t i o n ^ (which is equal to d efining a Cardinal utility
f u n c t i o n ) . ^
F or example, S i m o n , (4) defines thè utility function for
labor and for m a n a g e m e n t w i t h respect to two parameters, w (wages) and x (working c o n d i t i o n s ) . Betw e e n thè two extremes of a
^ J . Von Neuman, O. Morgenstern, 1947. ( 2)
The m a t h e matical expec t a t i o n of thè r a ndom variable X, is thè average value w e i g h t e d by thè relative p r o b a b i l i t i e s .
(3)
For a systematic profile on thè authors mentioned, see
S. Troiani, 1979, pp. 13-25, and for a m o r e detailed examinations, see thè collec t i o n of essays by O.R. Young, 1975.
(4)
11
-job so tiring and a wage so low that thè worker is unable to
accept these conditions, and of productivity so low and
wages so high that thè e m ployer prefers to d o s e thè factory, there is a series of intermediate combinations which are all
co n n e c t e d to thè threat of a strike or a lock-out. in order
to reach an agreement, it is necessary for both parties that
their utility e x c e e d their disutility. The series of
solutions guarantee thè largest sum of thè two utility
functions wi l l be preferred.
This analysis is d e v e loped by N a s h ^ in a way more
conducive to our purposes w i t h his "optimal threat" strategy. He discusses thè situations given by thè Game Theory at a nonzero sum w h i c h involve two parties whose interests are neither
comple t e l y opposed nor completely alike w i t h i n thè Cooperative Th eory in as much as it presumes thè two parties are able to ra t i o n a l l y discuss their problems and come to an agreement. The objective of any threatening action, be it strike or lock- out, is to increase thè cost of c o n f l i c t for thè adversary in negotiating w i t h o u t increasing one's own cost at thè
same time. The hypothesis that thè two parties know
perfectly well thè rules of thè game and their roles can lead
to determining thè correct threat for each of thè parties. If to this threat compat i b l e claims are tied, there will be
an immediate and satisfying agreement. In thè opposite
situation, though, one of thè two partners will have to
actualize his threat in order to reduce part of thè adversary's
surplus utility in order to reach an equilibrium. The
solution will be given by thè m a x i m u m prod u c t of thè net Utilities of thè two partners.
Even before Na s h and thè formulation of thè Game Theory,
1 2
-Z e u t h e n ^ had formulated his theory of thè bargaining system. It is focused on "maximum risk," w h i c h is thè m a x i m u m proba- bili t y of conflict that each partner in play is wil l i n g to tolerate in order to obtain most favorable conditions rather
than alternatives more favorable to his counterpart.
The two relations of "maximum risk" characterize thè
s t rength of "determination" of thè partners in negotiations to fight in order to obtain thè mo s t favorable alternative.
Nonetheless, ea c h of thè partners will begin to make concessions w h e n they realize that thè d e termination of thè other (to risk conflict) is greater than their own, and that these concessions mu s t be such as to invert thè relation of thè determination of thè Utilities of thè partners.
Af t e r a finite numb e r of subsequent steps, thè two partners will reach. an accord that wi l l r e p r e s e n t — to use Nash's
te r m s — thè m a x i m u m pro d u c t of their utility. (2)
P en tries to surpass Z e u t h e n ’s model by c o n s t r u c t m g a function of ophelimity of thè n e gotiating partners, c h aracterized
in this case by thè wa g e level. To this, given thè mutuai
dependence of thè partners, a conflict ophelimity is tied which does not depend on c ontracted wage bu t on other factors.such as
F. Zeuthen, 1930. The formula in Harsanyi's terms for thè
m a x i m u m subjective prob a b i l i t y of c onflict for each party in pl a y is: n - n n - n 1 1 1 2 2 2 21 C = --- C = ---1 TI 2 TI 1 1 2 1
w h e r e n^^ is thè net utility of i' person in condition j.
The point of m a x i m u m utility will be c = c = 0 .
1 2
13
-profits, p o l i ticai c o n s i d e r a t i o n s , and "ludic" c o n s i d e r a t i o n s , that is satisfaction w i t h thè results.
In this way, thè author tries to free thè partners' choice from thè r a t ionality limits of thè same choice that in
Zeuthen's model lead to c h a r a cterize thè point of e q u ilibrium in thè equal i z i n g of thè two risk tendencies.
The d ifference betw e e n thè first and second functions gives rise to net contract ophelimity that singles out for each p a r t n e r thè c o nflict risk estimate and their own tendency to fight w h i c h in equil i b r i u m are equal.
On thè o ther hand, H i c k s ^ speaks of thè employer's c oncession curve and w o r k e r s ’ resistance curve, both in i ncreasing and d ecreasing function to thè relation between
wages and foreseen strike duration. The former starts out at
thè w a g e level thè employer w o u l d be w i l l i n g to pay with o u t workers' claims and asymptomatically reaches a level "beyond w h i c h no workers' league c an force thè employer to go."
14
-The latter goes down from a w a g e level mu c h higher than that which thè e m ployer can reasonably concede to one to which
"thè workers mai n t a i n in a parti c u l a r wa y to have a right" and ends at a m i n i m u m salary "because there m u s t be a m a x i m u m time beyond w h i c h workers cannot persevere in their resistance."
The point where thè two curves intersect represents thè m a x i m u m salary that can be obtained while avoiding a strike threat; "thè highest w a g e that skillful negotiations can ge t
out of management." This asymmetry originates from thè two basic
asymmetries of thè model, w h i c h implicitly assumes that thè
employer knows thè pos i t i o n of thè workers' resistance curve and not vice versa, and that thè trade union propose a wage increase w h i l e management, instead of m a k i n g other offers, limits itself to accepting or rejecting that p r o p o s a i . ^
The last author I w o u l d like to mention regarding thè series of m o dels for d e t ermining wages in a bilateral monopoly
( 2 )
is Shubik. He emphasizes, as did Hicks, that ìf thè
i nformation of thè n e g otiating partners be w i t h o u t error, then a strike will not take place and there w o u l d be only a
v ariation in thè distribution of profits according to thè
business cycle. A high level of information facilitates an
accord; a low rate of information, on thè other hand, apart f r o m thè phase of thè business cycle, increases thè likelihood of a strike or a lock-out.
H a ving also m e n t i o n e d this last contribution permits one to emphasize that in thè area of so-called classical Game Theory,
R.L. Bishop, 1964, synthesized thè two classic theories of Zeuthen and Hicks into one c o m p osite Zeuthen-Hicks theory
which, though better than thè two separate ones, substantially m aintains their limitations.
15
-given thè assump t i o n of rati o n a l i t y and of perf e c t and complete information of thè two p a r t n e r s , strikes and lock-outs are valued only as p o t ential threats in thè search for a point of
e q u i l i b r i u m w h i c h will be reached w i t h o u t these strikes and lock-outs actually taking place.
A strike will take place only when, a c c ording to Hicks
and Shubik, there is an evalu a t i o n error by one of thè parties
in play or if his b e havior is irrational.
In line wi t h thè goals of this research, to identify an economie m o d e l that explains thè progress of strike frequency
and duration, this approach is not very revealing due to thè
re s t r i ctiveness of thè hypothesis.
1.1.2 D e v elopment of thè B argaining Theory
Other developments of game theory which analyze b argaining w i t h imperfect or incomplete information seem m o r e interesting.
P er f e c t information means that whoe v e r participates in n egotiations knows thè previous moves and also thè chance moves of thè partner, w h i l e imperfect information means that neither p r evious moves nor any combination of moves are known.
On thè o t h e r hand, complete information means that thè players kn o w thè rules of thè game and, therefore, also thè utility function of thè o t h e r p l a y e r — classic game theory is b ased on this p r i n c i p l e — w h i l e incomplete information means
that thè nego t i a t i n g partners are u n c ertain about some important
parameters: information about thè other partner, pay-off
functions, etc.
The difference between imperfect and incomplete information roughly recalls thè difference betw e e n risk and uncertainty.
In thè first case thè partners kn o w at least "thè objective p r obabilities associated w i t h alternative possible outeomes of thè game" and in thè second case "where even some or all of
16
-these objec t i v e s p r o b a b i l i t i e s are not even defined in any s trai g h t f o r w a r d s e n s e . " ^
As has already been mentioned, thè classic game theory c onsidered n e g o t iations in w h i c h rational partners p o s s essed p e r f e c t and complete infor m a t i o n and hold strikes only as a
p o t e ntial threat. A strike could h a ppen only in thè case of
c o mplete bu t i m p erfect information, that is thè case in which thè p a r t i c i p a n t to b a r g a i n i n g behaves as if "he understands thè natu r e of e x p e c t e d - u t i l i t y calculations, a nd he is able to specify h i s p r e f e r e n c e o r d e r i n g i n C a r d i n a l r a t h e r t h a n o r d i n a i t e r m s
and accepts thè implications of expe c t e d - u t i l i t y calculations (2)
w i t h respect to thè p h e n o m e n o n of risk."
The mo r e r e c e n t d e v e l opments of Barga i n i n g Theory deal w i t h games wi t h p e r f e c t bu t incomplete i n f ormation in w h i c h thè reaction functions of thè p a rtners are ob t a i n e d through an infinite process of acqu i s i t i o n of information on reciprocai
(3)
reactions. Harsanyi, w ho is perhaps thè mo s t important
author along these lines, tries to resolve thè impasse of
infinite r egressive process that gives rise to thè determination of thè points of c o n c e s s i o n of thè two p a rtners through thè
u t i l i z a t i o n of c o mpound e x p e c tations and of s tereotype utility functions that w o u l d assure thè consistency of reciprocai
e x p e c t a t i o n s .
A n ult e r i o r deve l o p m e n t is repr e s e n t e d by thè Bayesian game model in w h i c h thè partners, even if they do not kn o w or are u n c e r t a i n about important data on thè o ther p a r t n e r are n e v e r t h e l e s s in p o s s e s s i o n of a p r o b a b i l i t y d i s t r ibution on thè a l ternative moves of thè other partner, even though this m a y be subjec t i v e in origin. N ow if these prob a b i l i t y distributions
^ A. S c h o t t e r and G. Schwòblauer, 1980, p. 484. ^ O . R . Y o u n d (ed.), 1975, p. 11.
17
-are m u t u a l l y c o n s i s t e n t such that they can be c onsidered as der i v i n g fr o m a basic p r o b a b i l i t y dis t r i b u t i o n on parameters u nkn o w n to thè partners, o ne falls back on a p a r t i c u l a r game w i t h c o mplete information, thè B a y e s i a n g a m e . ^
As far as b e i n g more r e p r e s e n t a t i v e of thè reai process of e xchange and a c q u i s i t i o n of information that happens between thè two n e g o t i a t i n g partner, this last bran c h of Game Theory as does ba s i c a l l y thè entire Game Theory, favors mat h e m a t i c a l
. • ( 2)
f o rmulation and n e g l e c t s e m p irical tests.
On thè o t h e r hand, e c onomie literature on strikes favors e x p o s i n g thè e c o nometrie m o d e l to empirical v e r i f ication
n o r m a l l y a c h i e v e d as a discu s s i o n of h ypotheses on thè behavior of thè partners, e m p l o y e r and employees, and not as a
d e r i v a t i o n of an analyt i c a l model.
The first and perhaps thè mo s t v a l i d example of a union of m a t h e m a t i c a l formu l a t i o n and successive empirical v e r i f ication is
thè A s h e n f e l t e r and J o h n s o n m o d e l . (3) Nonetheless, this
reaches thè o b j e c t i v e at thè cost of an important principle of
thè game theory as presented. In fact, this model, which will
be p r e s e n t e d in detail in thè following pa r a g r a p h and discussed in Chapter Two, is b a s e d on p e r f e c t and complete information u n i l a t e r a l l y p o s s e s s e d by thè manager. He is aware of thè re a c t i o n function of thè wor k e r s a nd his own; therefore,
he dominates thè b a r g a i n i n g proc e s s by c h oosing thè claims
« (1)J.R. Harsanyi, 1967, 1968.
(2)
T h o u g h it is n e c e ssary to remember that B. R u s t e m and K. V e l u p i l l a i in their article "A N e w A p p r o a c h to thè B a r g a i n i n g P r o b l e m , " furnish a c o m p u t e r i z a b l e version of
ba r g a i n i n g processes as i t e r ative proce d u r e s during w h i c h each p l a y e r raodifies his cost and u t i l i t y functions.
( 3)
and thè optimal strike duration r e s u lting in equilibrium.
1.2 The A s h e n f e l t e r and J o h n s o n M o d e l of B a r g a i n i n g Theory
W i t h i n thè B a r g a i n i n g Theory, thè m o d e l p r e s e n t e d by A s h e n f e l t e r and J o h n s o n , ^ c o n f ronts three
par t i c i p a n t s in labor - m a n a g e m e n t n e g o t i a t i o n s : management,
trade u n i o n leadership, and thè rank and file. These are tied
to each o ther by d i r e c t or indirect exchange r e l a t i o n s h i p s . Trade u nion leadership m a x i m i z e s its objectives of
survival and growth of thè union and of personal survival of thè leader group by satisfying thè expectations of thè base
(in this model c o n vertible into m o n e t a r y terms, m o s t l y s a l a r y ) . Moreover, in b a r g a i n i n g w i t h management, thè leadership tries
to ma x i m i z e thè e x p e c tations of thè base in order to obtain, in turn, a m a x i m i z a t i o n of c o n s e n s u s — support. W h e n these e x p e c t a t i o n s are greater than thè conc e s s i o n s M a n a g e m e n t is w i l l i n g to negotiate, trade u nion leadership wi l l try to reduce
thè e x p e c tations of its mexnbers, or if not being successful, they m u s t choose b e t w e e n two a l t ernative strategies, sign
a c o ntract less than thè b a s i c expectations or cali a
strike.
The first strategy p r oduces disco n t e n t at thè base and a r e d u c t i o n of support, so thè leadership group w i l l prefer
thè second. On thè one hand, in fact, this increases thè
b a r g a i n i n g power of thè trade u nion w i t h res p e c t to m a n a g e m e n t for thè d e m o n s t r a t i o n of strength (capacity to resist and inflict d ire c t d a m a g e s ) ; and on thè other hand, it w i l l reduce thè
exp e c t a t i o n s of thè base because of thè r e s i s t a n c e shown by
ma n a g e m e n t and thè immediate loss of salary. (See Figure 1,
p. 19.)
18
19
-Strike A g r e e m e n t
T o satisfy thè e x p e c tations of members
--- ^
S urvival and grow t h of union as an i n s titution ^ ---P e r s o n a l p o l i t i c a i survival of leader F i g u r e 1 ; Union ì
^Rank and File
D e r i v e d from: 0. A s h e n f e l t e r a nd J. Johnson, "Bargaining Theory, T rade U n i o n s , and Industriai Strike Activity," A m e r i c a n Economie Review, 1969.
20
-F r o m this e s s entially p o l i t i c a i model, thè authors analyze and formalize thè firm's choi c e b e t w e e n conceding thè wage
increase that thè workers c o nsider acceptable at thè expiration of thè c o n t r a c t or tolerating a strike to obta i n a more
favorable contract.
The n e g o t i a t e d w a g e increase, Y , that thè workers
c o n s i d e r a c c e p t a b l e is d e f i n e d as proportional to thè absolute
wage increase, Aw, w i t h resp e c t to thè previous contract
A
wage, w.
w
A c c o r d i n g to thè above reasoning, this depends on thè duration of thè strike.
(2) Y a » v ( S ) .
The authors assume thè r e lation between w a g e increase and
strike du r a t i o n ca n be repr e s e n t e d b y thè following formula:
(3) Y a = Y* + (Yq - Y * ) e ~ TS
w h e r e Yq = v(0) r epresents thè d e manded wa g e increase at
thè e x p i r a t i o n of thè c o ntract and, therefore, is not accompanied
by strikes; Y* = v(°°) is thè w a g e increase thè workers are .
n ot w i l l i n g to accept even after a strike of infinite duration, and t is thè v elocity with w h i c h thè w o r k e r s reduce their expectations.
2 1
-On thè other hand, thè pr o f its of thè firm, II, in each
period, supposing a fixed o u t p u t p r o d u c e d w i t h thè same technology to be sold at thè same price in thè future, w i l l be given by:
(4) n = a P-6 W - H
w h e r e P is thè p rice of goods produced, H thè level of fixed
p r o d u c t i o n costs, and W thè n e g o t i a t e d wage rate,
(5) W = W ( 1 + Y )
a
since thè firm w a n t s to m a x i m i z e thè p r e s e n t value of future profits, (V),
00
(6) V = / ne"rtdt.
0
By s u b s t ituting (3) in (5), (5) in (4), and (4) in (6), and
after thè m a t h e m a t i c a l steps in r e s o l v i n g for S, thè optimal strike d u r a t i o n is obtained.
2 2
-S = - In
P - PWC1+Y*) W ( l + b <Y - Y*)
F r o m this solution it is d e d u c e d that:
-The likel i h o o d of a strike, ceteris paribus, w i l l be greater (thè p a rtners will be less dis p o s e d to come to an
a g r e e m e n t before a c o n f l i c t occurs) thè greater Yq and t.
-The l ikelihood of a strike w i l l be less, (thè
partners will be m o r e w i l l i n g to come to an agreement) thè g rea t e r Y * , m i n i m u m a c c e p t a b l e w a g e increase; r, thè
d is c o u n t rate of thè firm; P, price of goods produced; and
aver a g e prod u c t p er w o r k e r (inversely c o r r e l a t e d to thè r elation b e t w e e n w a g e - b i l l and total c o s t ) .
Finally, thè authors deri v e d from this analytical model an o p e r a t i o n a l v e r s i o n that they tested successfully in thè U.S.A. from 1952 to 1967.
The strike p r o b a b i l i t y at time t (St ) wi l l be
(7) S! = 8 + & T + 6 Y . + e n*
t O 1 2 O t 3 t ~ l
w h e r e T indicates time (in this p a r t i c u l a r case it is suppos^d to be n e gative according to thè hypothesis of secular decline
of strikes ^ ). and thè rel a t i o n s h i p between p r ofit level
and wage-bill, referring to thè p r evious contract that takes
thè p lace of thè a b o v e - m e n t i o n e d rel a t i o n ^ and w h e r e Y Qt
(8) Yot = f( U, f Vi 4Rt.i( n ^ )
(-) (+) (±)
^ S e e thè thesis on "Secular Decline of Strikes" by P.T. Hartman and A.M. Ross, 1960.
S
|
c
23
-d e p e n-ding on U, u n e m ployment rate, R, p revious v a r i a t i o n of thè lagged reai w a g e ^ and on thè p r o f i t share.
Substituting, one has:
1+) (-) 1=U (-) (+) (-)
S t rike p r o b a b i l i t y d e f i n e d by thè authors as thè
number of strikes that b e g i n in a p e riod divided by thè number of contracts that expire in that time, is e x p lained in terms of reai w a g e i n c r e a s e (no money illusions e x i s t ) , of
unemployment, an d of p r o f i t share on thè wage bill and is tested in thè U n i t e d States using q u a r t e r l y data.
P e n c a v e l ^ applies this approach to Great B r i t a i n from 1952 to 1967, o b t a i n i n g similar results as thè A m e r i c a n authors, through s u b s t i t u t i n g thè rough data on thè n u mber of strikes b egun in thè time peri o d for thè p r o b a b i l i t y of b e g inning a strike at thè e x p i r a t i o n of thè con t r a c t in that period.
The lags we r e o b tained a c c o rding to thè m e t h o d o l o g y of d i s t r i b u t e d lags p r o p o s e d by Shirley A l m o n b a s e d on thè p o l y n o m i a l m e t h o d of Lagrange.
(2)
R emember thè s y m b o l s :
S t = strike p r o b a b i l i t y in time t AR. = AW. - AP.
t t t
A W fc = annual rate of va r i a t i o n of m o n e t a r y wage A P fc = annual rate of v a r i a t i o n of c o n s u m e r price
U = u n e m p loyment rate
II* = p r o f i t level on thè wa g e - b i l l T = in time index (quarterly) et = distu r b a n c e element.
For thè results of thè tests, see thè schematic p r e s e n t a t i o n of thè results w h i c h follow.
^ j . Per.cavel, 1970, continues thè a n alysis by dividing into s e c t o r s .
(9) s; = A + 6 l vi AR. . + 6 U. + 6 II* , + B T + £. .
2 4
-E v e n D. H i b b s t e s t s this model w i t h s atisfying results from 1950 to 1969 in ten a d v a n c e d industriai countries, using as a de p e n d e n t var i a b l e thè v o lume of strikes (frequency x d u ration x e x t e n s i o n ) .
1.3 Oper a t i o n a l Ve r s i o n s of Bargai n i n g T h eory
As has alre a d y b e e n emphasized, m o s t of thè l iterature on con f l i c t that refers to B a r g a i n i n g Theo r y as thè interpretive p a r a d i g m of strikes favors thè e c o nometrie model to be applied to e m p i r i c a l tests.
A u t h o r s ge n e r a l l y f o llow two lines of reasoning, either they r e c o n s t r u c t thè A s h e n f e l t e r and Johnson model and propose an a l t e r n a t i v e v e r s i o n or a p p l i c a t i o n to a di f f e r e n t context, or they d i r e c t l y co n s t r u c t an opera t i o n a l m o d e l on hypotheses of thè b e h a v i o r of b a r g a i n i n g partners.
In this section, I w o u l d like to illustrate those which, in m y opinion, are thè be s t examples of thè second line of reasoning. I wi l l then o ffer a schematic p r e s e n t a t i o n showing thè results of thè regressions fr o m some of thè m o s t
inte r e s t i n g articles on this subject, and con c l u d e w i t h comments on thè va r i a b l e s used in thè tests.
1.3.1 T he Davies Model
The m o d e l d e v e l o p e d by Davies in his 1979 articles seems to be thè best example of a direct approach to thè operational v e r s i o n for thè p a r t i c u l a r clarity and co h e r e n c y of thè author's presentation.
(1)D. Hibbs, 1976. (2)
For further e x p lanation cfr. Appendix. Limits of Statistic
2 5
-He states his desire to exp l a i n "thè time series prof i l e of a g g regate strike frequency in terms of v a r i e t y of macro- economic v a r i a b l e s ^
He also states that only w o r k conflicts on wages of a (
2
)d i rect m o n e t a r y x m p l i c a t x o n will be considered, that three partners p a r t i c i p a t e in b a r g a i n i n g — management, trade union
and w o r k e r b a s e — and that b a r g a i n i n g takes p lace under u n c ertain c onditions and in an e n v i r o n m e n t of imperfect information.
M a n a g e m e n t Trade Union and Workers
In fact, thè a u t h o r assumes that during n e g o t iations begun at time t, thè two p a rtners exc h a n g e info r m a t i o n b e g i n n i n g w i t h thè respe c t i v e trade union wa g e claims Y ^ an d m a n a g e m e n t w a g e offers which already a l l o w for i d e ntifying a c e r t a i n
^ R . J . Davies, 1979, p. 205. (2)
This spe c i f i c a t i o n is e x t r emely i m p o rtant because it is c oh e r e n t w i t h thè econometrie e quation that w i l l be tested using only pay-strikes.
26
-interval w i t h i n w h i c h a final accord should fall. Conce s s i o n s will be ma d e until their exp e c t e d cost w i l l be less than thè cost
of a strike. Taki n g thè first graph into consideration, thè
e m ployer wi l l be w i l l i n g to make concessions if ot(W), his subjective e s timate of thè cost of conceding w a g e increases above thè initial offer of Z .— u n d e r s t o o d in terms of
ot
p r o d u c t i o n cost increase and a w e a k e n i n g of his p o s i t i o n in
future n e g o t i a t i o n s — be less than B(S), his subjective
e stimate of cost in terms of a strike n e c essary in order to
m a k e thè work e r s a c c e p t a w a g e increase less than that initially
demanded, Y , .
ot
By thè same token, thè trade union and thè work e r s will be
w i l l i n g to reduce their demands if y(W) thè cost of an
a g r e e m e n t less than Y — in terms of lower wages, lower future
b a r g a i n i n g p o w e r and less support from thè b a s e — is greater than their e s t i m a t e <j>(S) of thè cost in terms of strikes n e c e s s a r y to o b t a i n from thè e m p l o y e r s a lary increases above
thè initial ones Z
Ot
Evidently, thè two partners, as they gather more i n f o r m a tion during negotiations, c o n t i n u o u s l y revise their initial e s t i m a t e s . It may b e ded u c e d that thè strike p r o b a
b i l i t y P(S) at time t wi l l depend on thè d i stance bet w e e n thè offer and thè wa g e demand and thè r espective p r o p e nsities of thè b a r g a i n i n g p artners to ma k e concessions,
P(S) = a{(Yo t - zo t ), b e t , bw t )
b e ^ r e p r e s e n t s thè attitude of thè e m p l o y e r and
bw t that of thè trade union to bargain,
and will be greater, thè greater thè distance betw e e n thè two
positions of thè partners (a^ > 0) and wi l l be smaller thè
27
-The a u t h o r then goes on to identify thè relationships and thus thè proxies of thè variables above,
a r riving at an o p e rational e q u a t i o n to be
s ub j e c t to e m p i rical test. In fact, it can be imagined that
thè wage i n crease d emanded by thè workers Y ^ varies in
thè same w a y as thè degree of excess demand in thè labor
" s
market, as thè e x p e c t e d rate of price increase P^_, as thè
• 0
e x pected workers' w a g e W^., and as thè p r o f i t level JI^..
In this w a y a pr o c y c l i c h y p o t h e s i s of strikes is included for w h i c h in peri o d s of e x p a n s i o n c h a r a c t e r i z e d by an increase in production, p r i c e s , profits, and expectations, there is an increase in c l a i m s .
Yot = 6<xt-
*%■
"t' J t> 6 > 0w h e r e w a g e e x p e c tations are thè result of thè "going rate" of
wage c o n t racts (W°_j) a nd of thè recent erosion of workers'
income b y taxes (R^).
W ® = (f>{W°_y R t > * > 0.
T he n e x t step in specif y i n g thè model consists of d i s c u s s i n g thè m a n a g e r ' s wa g e equ a t i o n zo t * Moreover, it will be i n f l u e n c e d by thè same v a r i ables that condition workers' claims, even t h ough in an op p o s i t e way. For
example, price rises push w o r k e r s to ask for
an increase in income to m a i n t a i n their p u r c h a s i n g p o w e r Constant, and a l t e r n a t i v e l y , m a k e it easier for
m a n a g e m e n t to t r ansfer thè ne w costs onto thè price of thè P roducts and not increase thè incidence of strikes.
The last phase of thè model is to specify thè economie d e t e r minants of thè r espective p r o p e n s i t i e s of thè m a n a g e r
b e t , and of thè trade union and workers, bw t ' to bargaining.
y < 0. 2
The employer wi l l be more w i l l i n g to me e t workers' claims thè h i g h e r his p r o f i t m a r g i n (11^) and thè larger thè e x p a nsion phase of thè business cycle (X^); while, on thè other hand, he w i l l pref e r to r e sist those claims thè greater his stock of Products (I ).
As far as thè labor ba s e is concerned, thè wor k e r s will be able to go on strike if they have thè financial ability to do so, that is if occasi o n a i w o r k is available, if they have accum u l a t e d economie resources, and if they are not subject to
ex p enditure commitments. Their will i n g n e s s to negotiate
(bw t ) will vary in a p r o c y c l i c sense (Xt ) and ac c o r d i n g to seasonal terms (Yt ) .
The be h a v i o r of trade union leadership in negotiations will be influenced by thè a v a i lable financial r e s o urces of thè union which, however, do not directly imply a greater or lesser willi n g n e s s to n e g o tiate because it also is influ e n c e d by
type of org a n i z a t i o n (D^.) .
Trade union m i l i t a n c y will c onstitute thè last limit M t . V > 0, ip ^ 0 1 2 '■ Y = seasonal dummy 0, X < 0 2 S u b s t i t u t i n g :
29
-P(s)t = a{xt , P ^ w ° _ . , R t ,nt ,it ,yt ,Dt ,Mt }
a , a , a , a ^ 0 a , a , a , a > 0 a < 0 .
1 3 5 8 ^ 2 1 * 6 9 7
A d d i n g a dummy var i a b l e for thè incoine p o l i t i c s (hard, soft, entry) and thè element of error, and using thè number of wage strikes as a d e p e n d e n t variable, this m o d e l was
s u c c e ssfully subject to empirical v e r i f i c a t i o n in thè U.K. fr o m 1966 to 1 9 7 5 . (1)
The m e r i t of this ver s i o n of thè B a r g a i n i n g theory model lies in h a v i n g c l a r i f i e d that thè economie variables used in i n t e r p r e t i n g c o n f l i c t r efer only to wa g e strikes, in having emphas i z e d thè c o n t i n u o u s process of i n f ormation a c q uisition and of s u b s e q u e n t r e v i s i o n of final offers and demands of thè two partners, a nd in havi n g attempted, by introducing thè
pro p e n s i t i e s of thè par t n e r s to bargaining, to render thè model more manageable.
1.3.2 S c h ematic P r e s e n t a t i o n of Some Oper a t i o n a l V e rsions of thè B a r g a i n i n g Theory Model
An attempt has been m a d e to summarize and s c hematically pre s e n t a b o u t twenty ecpnometric tests on thè deve l o p m e n t of s t r i k e s .
R e p o r t e d in thè charts are:
— in thè first column, thè author's name and bi b l i o g r a p h i c re f e rence of thè article examined;
— in thè second column, thè coun t r y or countries exa m i n e d in thè test and thè time p e riod in w h i c h empirical ver i f i c a t i o n was applied;
3 0
-— then, thè sectors under consideration, if thè entire economy has be e n examined or if some sectors h a v e been e xcluded or only a few considered;
— thè strike m e a s u r e on w h i c h thè regres s i o n was made, number of strikes, h ours lost, workers participating, and thè
p e r i o d i c i t y (annually, quarterly, etc.);
— then thè expli c a t i v e v a r i ables r e p resented by thè most
•
sta n d a r d symbols in c u r r e n t literature; for example, P represents p rice variations, w i t h thè signs + or - if thè va riable is significant, o t h erwise thè symbol (o) next to thè va r i a b l e if it has n ot p r o v e d to be significant;
— finally, thè c o e f f i c i e n t of det e r m i n a t i o n (JR2 ) and thè D.W. test of o u t - c o r r e l a t i o n òf thè residuals.