Strikes and holdouts in wage bargaining: theory and data

We develop a private-information model of union contract negotiations in which disputes signal a firm’s willingness to pay. Previous models have assumed that all labor disputes take the form of a strike. Yet a prominent feature of U.S. collective bargaining is the holdout: negotiations often continue without a strike after the contract has expired. Production continues with workers paid according to the expired contract. We analyze the union’s decision to strike or hold out and highlight its importance to strike activity. Strikes are more likely to occur after a drop in the real wage or a decline in unemployment. (JEL C78, J52, D82) Strikes and other costly disputes are commonplace. Yet a theory of why they happen has been slow to develop. John R. Hicks (1932) concluded that most strikes result from faulty negotiation. Arthur M. Ross (1948) moved toward an alternative explanation of strikes by recognizing that union leaders are motivated by personal advancement and the growth of the union. Orley Ashenfelter and George E. Johnson (1969) developed Ross’s political model of unions into a theory of strikes. In the Ashenfelter and Johnson (1969) model, strikes occur when the wage expectations of the rank and file are out of line with what the firm is willing to pay. If the union leaders present a low-wage contract fo