R&D INVESTMENTS AND SEQUENTIAL WAGE NEGOTIATIONS*

Abstract

This paper analyses how the structure of wage bargaining affects R&D investment by firms that increases the productivity of labour in a Cournot duopoly. We find that total expenditure on R&D is greater when wages are set simultaneously than when they are set sequentially. Thus sequential wage negotiations reduce the incentive for firms to innovate and affect the productivity of labour. When wage negotiations are sequential the productivity of labour is greater (lower) in the follower (leader) firm than when negotiations are simultaneous. We also obtain that for same parameter values it is possible for the firm with the lower productivity to end up paying a higher wage than the firm with the higher level of labour productivity.

Relocation and investment in R&D by firms

“…5 The literature on wage bargaining has analyzed how the structure in which workers are organized to bargain wages affects R&D investment by firms that increases the productivity of labor (see, e.g. Tauman and Weiss, 1987;Ulph and Ulph, 1998;Calabuig and González-Maestre, 2002;Bárcena-Ruiz and Campo, 2009 marginal cost of labor can be reduced by relocating the firm and the marginal cost of capital can be reduced by investing in R&D; in contrast, they consider only the second mechanism.…”

A Note on Timing of Endogenous Wage Bargaining: The Case of Complements

“…Barcena-Ruiz and Campo [13] showed that unions may choose to set wages simultaneous spending most on R&D if the size of the market is small enough and the efficiency of the R&D technology is great enough. 3 In the main body of analysis, we exclude the imperfect substitutability viz., the case when…”