Wage bargaining, holdout, and inflation

In many countries it is customary that production continues under the terms of the old contract during wage negotiations (holdout), unless a work stoppage is initiated. This paper analyses a model where the workers deliberately work less efficiently during a holdout, while the firm reduces bonus payments. If a holdout is more costly to the firm than to the workers, the wage bargaining will result in a nominal wage increase. The model implies a Phillips curve that consists of two vertical parts; one with high inflation and low unemployment and one with low inflation and high unemployment.