Labor Markets

The article explores the increasing popularity and importance of interest arbitration with regard to resolving collective bargaining disputes in public sector labor relations in the U.S. In avoiding or terminating strikes that threaten basic public interest, the use of arbitration may pose the only practical means of dealing with the situation. Furthermore, third-party figures brought to negotiating disputes harbors a fairness concept that is often viewed an important ingredient of labor stability.

The degeneration of orderly relationships between city governments and their employees seriously complicates the nature of government and democracy in urban America. While most cities have not yet experienced major minimal labor breakdowns, most city governments do suffer from seemingly chronic conditions, like inadequate revenues and spiraling costs, which easily can serve as catalysts for municipal labor crises. Data show that serious labor relations problems are no longer limited to a few unfortunate cities like New York, the subject of this study.

We study optimal workforce and contract design for a firm that employs a team of two agents. The agents have possibly diverse demographic characteristics captured by their discount factors. We also study optimal team design for four agents with given discount factors—two with low discount factors and two with high discount factors—who are to be assigned to two teams and identify conditions under which diverse assignment is optimal.