Worker Motivation, Wages, and Bilateral Market Power in Nonunion Labor Markets

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The terms of market exchange can, under certain conditions, even in competitive markets, reflect underlying power relationships. Bilateral market power exists in employment relationships whenever both workers and employers benefit from maintaining their association: whenever the value of the employment relationship exceeds the value of the next best alternative for both parties simultaneously. This paper develops a widely applicable model of bilateral market power in employment relationships along with some of its implications.