A. C. Pigou's Theory Of Collective Bargaining

The theory of Collective Bargaining was founded by the late Prof. A.C. Pigou. In this particular theory, it is justified that the flow in which manual labour and upper management institute upper and lower income restrictions within which a concluding consent is achieved. To explain further on the upper limit which was permitted to the union's ideal wage, the higher management will propose the income which is slightly below the acceptable range for the union. From the above parties, the union as well as the management panels will generally persist through a sequence of proposals and pledge proposals. In one corner, the union will actively lower the demanding rate of wages while the higher management would increase the income initially offered.

Managements perceived cost of disagreeing with the union’s terms (MCD)

Unions Bargaining Power = --------------------------------------------------------------------------

Management perceived cost of agreeing with the union’s terms

if the Unions Bargaining Power is less than one), management will chose to disagree and there by reject the unions terms. If however, management judges that it is more costly to disagree than to agree (i.e., if the Unions Bargaining Power is greater than one) management will choose to agree. Managements bargaining Power can be similarly define as;

Unions perceived cost of disagreeing managements with managements Terms (UCD)

Bargaining power (MBP) = -----------------------------------------------------------------------------

Unions perceived cost of agreeing with management s terms (UCA)

Once again if the union believes that it is more costly to agree than to disagree the union will disagree with managements offer whenever the denominator is bigger than the numerator in equation 2, for example whenever the management is bargaining power is less than 1; the union will choose to discard managements offer. Conversely, if the union judges it to be more costly to disagree than to agree, the union will choose to agree. In other word, when managements bargaining power in greater than 1, the union will be willing to accept managements offer. The unions cost of disagree and agreeing can be defined similarly to those of