Growth and Employment in Europe: Sustainability and Competitiveness, Department of Economics, WU (Wirtschaftsuniversität Wien)
A NOTE ON FRANCHISING AND WAGE BARGAINING
Abstract: A franchise contract relocates distributable rent between
franchisor and franchisee. With decentralized wage bargaining this modifies
the position of the union in wage bargaining. If the rent is relocated to
the franchisor completely, then even a strong union is not able to raise
the wage above reservation level in the franchisee's firm. If franchisor
and franchisee negotiate on rent division, there is an incentive to
increase franchise fee with the consequence that franchisee's wage is
pushed down. Therefore the overall rent assigned to labor depends on the
differences of labor intensity in the franchisor's and franchisee's firm.
Firm owners may be able to transfer distributable rents from a firm with a
strong union to one with a weak union. Additional a franchising contract
shows up a first mover advantage. The franchising contract is placed before
wage bargaining, benefiting the franchisor.
Keywords: wage bargaining, franchise contract; (follow links to similar papers)
JEL-Codes: J51,; L22; (follow links to similar papers)
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