How do Bureaucratic Budget Competition and Collective Bargaining Affect the Share of Temporary Employment?

This paper will present a two-period model in which two bureau-union units, due to the presence of a tenured labour constraint, negotiate sequentially over employment and wages, under the hypotheses that the bureaus maximise output and the sponsor can commit itself to an overall budget. The paper will show that, when both tenured and temporary workers are essential in production, the extent and strength of collective bargaining power of unionised permanent workers, jointly with bureaucratic strategic incentives in budget competition, will determine a suboptimal allocation of inputs. As a result, strategic over-hiring of permanent workers may emerge in symmetric equilibrium.