Is it Really a Good Compromise When Both Parties are Dissatisfied?
When discussing negotiations of any kind the old adage, “a good compromise is when both parties are dissatisfied” comes to mind. It seems that when it comes to labor disputes, people view bargaining as a zero-sum game. In order for one player to win, another has to lose. For example, raising wages for employees increases the company’s overhead, thus lowering profit margins. But is it always true that labor negotiations are a zero-sum game?
There are two main types of bargaining that are crucial in an introductory labor relations course; integrative and distributive. Integrative bargaining results in both parties benefiting, a win-win situation, like a Nash equilibrium. Distributive bargaining results in one party’s interests being maximized, a win-lose situation, like a zero-sum game. For integrative bargaining, both parties must have shared interests. To apply this to labor negotiations, the interests of employees and management must be examined.
First, we must examine employee interests. We can assume that employees primarily want to maximize their pay, working conditions, benefits, treatment, and job security. Second, we must examine management’s interests. We can assume the management wants to maximize profits and productivity. Keeping this in mind, is there a way to find a Nash Equilibrium?
To apply this to the New York Times article, which examines a labor dispute over wages, we must look at the possible outcomes if management does or does not increase wages and if employees do or do not strike. In labor negotiations, when management and employees, or union representatives, do not agree, this may result in a strike, which is in neither parties best interest. Employees lose pay, depending on the size of a union’s strike fund, and management forgoes profits for the strike period. However, management has the option to replace the striking employees. This does not come without costs, though, such as onboarding and training. Therefore, both parties want to avoid the possibility of a labor strike, regardless of whether it will or will not result in a pay increase. Employees will always win when wages are raised – the same cannot be said for management. If employees do not strike and keep the same wage, which is technically a loss due to inflation, they are left unsatisfied. Not increasing wages is technically a win for management, as it allows for profits to be maximized. If you consider the long-term effects, which is often the case in negotiations, then it may paint a different picture. Without a pay increase, employees are left unsatisfied and disgruntled. This can affect productivity and turnover, which costs management. Additionally, bad publicity, such as an article being published in a popular newspaper, may influence consumer demand. Thus, it may be in management’s best interest to raise wages. If management benefits from raising wages on the market and how replaceable the employees are. If the market is in management’s favor and workers are easily replaceable, then it is not likely that they will benefit from raising wages. If the market is in the employees favor, and they are not easily replaceable due to their skills or a labor shortage, for example, then management will likely benefit from raising wages. Therefore, there are instances where a Nash Equilibrium can exist for management and employees.
In the broader scope, there are other instances where labor and management have shared interests, or a Nash equilibrium. An example of this would be health and safety. Clearly, it is in employees best interest to be in a safe and healthy work environment but it is also in management’s best interest. This is often an area where integrative bargaining is highlighted. However with more polarizing issues, such as wage increases, the possibility of a Nash equilibrium is more complex.
Article: https://www.nytimes.com/2022/09/02/business/uk-strikes-workers-walkout-rail.html