Consider the Hicks/A-J model of strikes. Suppose that the union resistance curve is W=5+.2s-.01s^2, where W is the percentage wage increase and S is the expected strike duration in days. The employer’s concession schedule depends on economic conditions—if conditions are good, the concession schedule is W=2.5+.2s, but if conditions are bad, the concession schedule is W=.8+.1s.
Find the expected strike duration and wage increase when economic conditions for the firm are good.
Find the expected strike duration and wage increase when economic conditions are bad.
Suppose that a mediator suggests to management and union leaders that future strikes could be avoided if the union uses the management’s initial wage offer as a signal of whether economic conditions are good or bad, and then both parties can negotiate with full information. Evaluate whether this mediator’s idea is likely to work in practice.