Abstract
We analyze the interactions between investment and local wage bargaining in a putty-clay model where the investment decision commits the firm to a particular capital intensity. This technological precommitment is used strategically in order to manipulate the bargaining outcome. We show that this strategic behavior induces a nonmonotonic relationship between the capital and labor demands of the firm and most of its environmental parameters (e.g., the bargaining power of the union, its minimum wage requirement, the capital cost). The results we obtain in our putty-clay framework thus contradict several conclusions of the standard literature on wage bargaining and investment.
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Fagnart, JF., Germain, M. Investment and technological choice in a right-to-manage model. Journal of Economics Zeitschrift für Nationalökonomie 66, 223–247 (1997). https://doi.org/10.1007/BF01226827
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DOI: https://doi.org/10.1007/BF01226827