| We develop a wage determination model under asymmetric assumption. If workers observe that the firm made an incremental profit over the last period, they initiate a bargaining process to increase their wage level. Since their information is not perfect, the criteria they use for the wage request is determined by their observations during the previous period. Firms, which are assumed to have perfect information, use expected profit to determine maximum acceptable wage level.; Once both negotiating parties have determined their acceptable wage levels, the bargaining solution is a result of both parties' bargaining powers. In our model, bargaining power is considered as “endogenous,” however, for comparison we also derive the solution under the assumption of “exogenous” bargaining power. Our results indicate that the endogenous bargaining power assumption is superior.; We are also able to derive conditions under which it is likely that strikes occur. I both parties acceptable wage request do not overlap, a strike may be the only solution to the bargaining process.; Utilizing data from US manufacturing industry and its two sub-industries, durable and non-durable goods, we test the model we develop. The empirical results show that our model has good explanatory and predictive power. |
