WAGE BARGAINING IN THE CONTEXT OF TWO PERSON BARGAINING MODELS GAME THEORY TERM PAPER
Table of Contents
TOC \o "1-3" \h \z \u EXECUTIVE SUMMARY PAGEREF _Toc395398461 \h 2INTRODUCTION PAGEREF _Toc395398462 \h 3NASH BRAGAINING SOLUTION……………………………………………………………………………………5 Is Migration a possible solution for Bihar labourers? PAGEREF _Toc395398463 \h 7BIBLIOGRAPHY PAGEREF _Toc395398464 \h 9
INTRODUCTIONIndia is a country with a population of more than 1.2 billion people as in the year 2014. In the past 80 years as a nation we have quadrupled leading to lack of employment opportunities and lower wages. Through this term paper we are trying to shed light at the wage discrimination between labourers from different states and the factors behind the same. Our focus will be on real life wage fixing situations between labourers and the landlords they work for. We also try to identify the asymmetries which may arise in the Nash bargaining solution which affects the bargaining power of the labourers. By the term wage bargaining we mean the discussions and negotiations held between the landlord and the labourer in order to come to an agreement on the level of wage rate. Assumptions made:
Real life situation in the Indian scenario.
This is a two player bargaining model wherein
Player 1 is the unskilled labourer employed in the agricultural sector Player 2 is the landlord who employs labourers in his land.
Both the players take decision individually and not collectively. Neither of the players communicates with one another to influence the decision of the other. Each player’s aim is to maximise his payoff. Hence, it is assumed that players are flawless followers and perfect calculators of their best strategies. They not only focus on their immediate income but possible future cash inflows as well. As the players are unskilled, wage determination is not on the basis of their talent but on various other external factors that shall be highlighted in the next section. The payoffs of the players have been calculated purely on the basis of monetary payments for their physical labour and exclude any kind of remuneration for costs arising from relocation, psychological stress The average payoff of the male employee is considered for reference across all categories. Our study focuses on the states of Kerala and Bihar since there is a stark difference between the demographic and socio-economic parameters of the two states and hence can be used for a comparative study. In this paper, we try to analyse the wage bargaining situation between the landlord and an unskilled labourer in an agrarian context and make a comparison of the basic wage rate between the states of Bihar and Kerala. According to the wage rate list published by the Ministry of Labour and Employment the average basic pay in Kerala is 320 and that in Bihar is 91 as of June 2009 in the agricultural sector. Nash co-operative model has been used to determine the minimum wage level in the two states taking into consideration the different asymmetries which might arise. Here, we assume that the wage bargaining is a one-shot play. Let us consider that the revenue from the cultivation to be ‘v’. The issue at hand is to reach an efficient outcome where by amount ‘v’ can be entirely divided between the players. Let us assume the individual payoffs to be x and y. Then, x + y = v represents the case in which the entire revenue from cultivation is divided between the landlord and the labourer. The players contribute to the creation of revenue and hence are eligible for claim on the revenue. The investment made by the labourer is his manual work while that of the landlord is the investment that he has made in terms of the land ownership, fertilizers, tractors etc. If the game is symmetrical i.e., Equivalent money value of the work done by the labourer = Investment made by the landlord Then, the best solution would be to divide the returns exactly into two halves...
Wage Rates In rural India, 2008-09, Ministry of Labour & Employment
State wise notified wages for MGNREGA.
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