Bargaining theory – Wage theoriesCompensation Management

Prepared By

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Manu Melwin JoyAssistant Professor

Ilahia School of Management Studies

Kerala, India.Phone – 9744551114

Mail – manu_melwinjoy@yahoo.com

Bargaining theories

• John Davidson

propounded this theory.

Under this theory, wages

are determined by the

relative bargaining power

of workers of their union

and of employers.

Bargaining theories

• The bargaining theory of

wages holds that wages,

hours, and working

conditions are determined

by the relative bargaining

strength of the parties to

the agreement.

Bargaining theories• Smith hinted at such a

theory when he noted that employers had greater bargaining strength than employees. Employers were in a better position to unify their opposition to employee demands, and employers were also able to withstand.

Bargaining theories• Limitations on the scope of

bargaining are also suggested by theory. Collective bargaining can be seen as the reduction of two risks to which the worker is exposed through individual bargaining.

Bargaining theories• here is first the risk that

the worker will be merely one of a number of applicants for a single vacancy and that competition between them will force the pay down.

Bargaining theories• In the bargaining theory of

wages, there is no single economic principle or force governing wages. Instead, wages and other working conditions are determined by workers, employers, and unions, who determine these conditions by negotiation.