Wage Determination and Capital Decisions in a Dynamic Monopoly Union Model

This paper uses a dynamic monopoly union model to analyse the joint determination of wages, employment and investment in the absence of binding contracts. The union maximizes a utilitarian utility function while the firm faces a neoclassical investment problem with adjustment costs. Concentrating on noncommitment equilibria, we solve for Markov strategies. When the model is tested for Greek manufacturing during the period 1954-1993, the data do not reject the theoretical predictions.