bargaining theory of wages

Written by

The Information Architects of Encyclopaedia Britannica

Last updated

June 17, 2026

Quick Summary

The bargaining theory of wages posits that wages and working conditions are not determined by a single economic principle but rather through negotiation between workers, employers, and unions. This contrasts with theories like the subsistence theory or marginal productivity theory.1

Collective bargaining, often through trade unions, aims to reduce risks for workers. It mitigates the risk of individual applicants being forced to accept lower pay due to competition for a single vacancy. It also lessens the risk of a job being offered on unacceptable terms, as unions increase workers' collective power to negotiate better conditions.23

The effectiveness of bargaining is influenced by various factors, including the demand for labor, the cost of production, and the potential costs of work stoppages for both parties.23

Summary created from Britannica articles using AI. AI can make mistakes, so verify using Britannica articles.

3 Britannica Sources

Ask Britannica AI about this topic

Britannica doesn't have a full article on this topic, so we've curated a list of our relevant coverage.

wage and salary
Bargaining theory
The bargaining theory of wages holds that wages, hours, and working conditions are determined by the relative bargaining strength of the parties to the agreement. Smith hinted at such a theory when he noted that employers had greater bargaining strength than employees. Employers…
Read More
The bargaining theory of wages holds that wages, hours, and working conditions are determined by the relative bargaining strength of the parties to the agreement. Smith hinted at such a theory when he noted that employers had greater bargaining strength than employees. Employers…
Read More

labour economics
Theory of bargaining
Limitations on the scope of bargaining are also suggested by theory. Collective bargaining can be seen as the reduction of two risks to which the worker is exposed through individual bargaining. There is first the risk that the worker will be merely…
Read More
Limitations on the scope of bargaining are also suggested by theory. Collective bargaining can be seen as the reduction of two risks to which the worker is exposed through individual bargaining. There is first the risk that the worker will be merely…
Read More

wage theory
In the bargaining theory of wages, there is no single economic principle or force governing wages. Instead, wages and other working conditions are determined by workers, employers, and unions, who determine these conditions by negotiation.
Read More
In the bargaining theory of wages, there is no single economic principle or force governing wages. Instead, wages and other working conditions are determined by workers, employers, and unions, who determine these conditions by negotiation.
Read More