The Ambiguity of Strike Replacement Legislation and Wages : A Sequential Investment-Bargaining Model

The effects of laws banning the use of strike replacements has been theoretically modeled using private information bargaining models. These models predict that strike replacement restrictions will increase wages, but assume that the capital stock is constant. This article develops a sequential model in which wage bargaining follows a capital investment decision. In this theoretical framework, strike replacement legislation which increases labor's bargaining power and reduces the productivity of capital during a strike can cause reduced investment. Consequently, the theoretical effect of strike replacement restrictions on wage outcomes is ambiguous. The article also explores extensions of this model to other public policy debates in labor relations