Timing of Wage Setting when Firms Invest in R&D

Abstract

In this paper, we analyze the effect that the timing of wage setting (i. e. whether wages set sequentially or simultaneously) has on the investment in R&D of firms, when that investment increases the productivity of labor, in the context of a Cournot duopoly. Contrary to the result obtained in the literature on wage bargaining, we obtain that unions may choose to set wages simultaneously. This is obtained if the size of the market is small enough and the efficiency of the R&D technology is great enought. It is in this case that firms spend most on R&D. By contrast, when unions choose to set wages sequentially, spending by firms on R&D is at its lowest.