The Kalai-Smorodinsky Bargaining Solution in Wage Negotiations

This paper characterizes the Kalai-Smorodinsky bargaining solution when firms and unions negotiate over wages alone, and firms set the level of employment in order to maximize profits given the agreed wage. The Kalai-Smorodinsky solution is analysed for the case that the wage elasticity of employment and the union's risk aversion are both constant. In this case there is a simple relationship between the Kalai-Smorodinsky and the Nash solutions.