Union–firm bargaining agenda revisited: when unions have distinct preferences

In this paper we revisit the issue of the scope of bargaining between firms and unions by considering a more general union’s utility functionwith distinct preferences and sequential negotiations. First,we compare exogenously given labour market institutions; i.e., right-to-manage (RTM) and sequential efficient bargaining (SEB). We show that the conventional wisdom, which states that firms always prefer RTM, no longer holds. In fact, when unions are adequately wage aggressive and have strong enough bargaining power, firms may prefer SEB negotiations; however, firms switch their preference to RTM when unions are very strong. Moreover, we show that a conflict of interest between the parties may emerge when unions are sufficiently employment oriented as well as sufficiently wage aggressive and not too strong or too weak in bargaining. Second, we analyse the endogenous choice of the bargaining agenda. We show that a rich plethora of equilibria may occur and new situations of conflict/agreement of interests between the bargaining parties arise in particular when unions are sufficiently wage-aggressive.