Dynamic collective bargaining. Frictional effects under open-shop industrial relations

A dynamic Stackelberg game analyzes collective bargaining between a trade union (leader) and a firm (follower) in a monopoly union model. Frictional effects (FE) for the firm encompass symmetric adjustment costs linked to the number of hired and fired workers, plus a wage-dependent term (assuming wage-dependent hiring costs and wage discrimination against newcomers). The union faces marginally increasing costs in firings and marginally decreasing benefits from hirings. The two-part FE for the firm, the FE for the union, or both jointly considered differently affect employment and wages. Interestingly, standard adjustment costs increase hirings, even while the union reduces wages