Pattern Bargaining

Abstract

Many unions in the United States have for several years engaged in what is known as pattern bargaining-a union determines a sequence for negotiations with firms within an industry where the agreement with the first firm becomes the take-it-or-leave-it offer by the union for all subsequent negotiations. In this paper, we show that pattern bargaining is preferred by a union to both simultaneous industry wide negotiations and sequential negotiations without a pattern. In recent years, unions have increasingly moved away from patterns that equalized wage rates across firms when these patterns did not equalize interfirm labor costs. Allowing for interfirm productivity differentials within an industry, we show that pattern bargaining, whether it involves commitment to a pattern in wages or to a pattern in labor costs, achieves the highest possible payoff for the union from among a large group of alternatives. We also show that for small interfirm productivity differentials, the union most prefers a pattern in wages, but for a sufficiently wide differential, the union prefers a pattern in labor costs. These results provide an explanation for the pervasive use of pattern bargaining as well as many of the observed changes in pattern bargaining that have occurred in recent years.