Negotiating Worker’s Wages: Bargaining and Power in Networks
In class, we discussed bargaining and power in networks. In any kind of network, there is a focus on the way that power is manifested between pairs of people or companies and their links larger social to others in a larger network. In power exchanges, the act of bargaining takes into account the idea of having outside options. One person or company may be more powerful in a relationship because they are in a more dominant position in the network, meaning they have greater access to social opportunities outside this single relationship. Between two or multiple parties, the distribution in the value of power can be viewed as a social exchange. During most social exchanges, the distribution of power can create an imbalance. Furthermore a company or individual may receive the most amount of power in the relationship because of its position or available outside options in the network, leaving other parties to get the lesser value of power within the larger network.
This academic paper by the economics department at the University of Chicago provides further insight into how this relevant phenomenon of bargaining in networks translates into the real world. The paper discusses an example of social power between the firms and their worker’s negotiation over wages. A worker has outside options that are important for determining what wage offers they will accept. As negotiations between the firm and their workers go on, the outside options to the worker are subject to change as they acquire new outside offers from other firms or as the market demand for the skillset changes. We can think of the bargaining or exchange of power like this: if the worker delays accepting the firm’s wage offer and his outside option(s) become better, then the previous wages offered by the firm may no longer be good enough for the worker to accept. This idea can best be supported by the principles of dependence. Some workers may be in a position of the network that has no outside option(s), meaning that the value of the power they end up with is dependent on another workers’ bargaining outcome and whether they make a deal or don’t make a deal with their outside options. We can also think of this as the firms are dependent on the workers if they have no outside option(s), thus making them negotiate with the workers on a wage to reach a solution. The overarching idea is that at the end of the day, the parties will experience some pressure to actually reach a deal. This describes Nash Bargaining Solution that the game will proceed through a sequence of alternating offers until someone accepts an offer or the negotiations reach a breaking point meaning each player will receive some kind of payoff.
References
https://economics.uchicago.edu/sites/economics.uchicago.edu/files/uploads/PDF/Outside%20Options%20and%20Optimal%20Bargaining%20Dynamics.pdf
Networks, Crowds, and Markets: Reasoning about a Highly Connected World. By David Easley and Jon Kleinberg:
https://www.cs.cornell.edu/home/kleinber/networks-book/networks-book-ch03.pdf