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The union vigorously demands wage increases from productivity increases, and wage increases to offset cost-of-living increases, but we abstract from these forces here.

For our present purposes we assume that the sole subject of bargaining is the basic wage rate ( not including productivity improvement factors or cost-of-living adjustments ), and it is this basic wage rate which determines the level of costs.

Productivity is something of an amorphous concept and the amount of productivity increase in a given time period is not even well known to the industry, much less to the union or to the public.

Disagreement on the amount of productivity increase exacerbates the problem of agreeing how an increase in profit margins related to a productivity increase should be shared.

The existence of conflict and of vigorous union demand for an increase in money wages does not contradict the assumption that the union is willing to settle for cost-of-living and productivity-share increases as distinct from a cost-raising increase in the basic wage rate.