Application of Difference Equations to Labor- Management Negotiations

Abstract

Difference Equations play an important role in the construction and analysis of mathematical models of economics processes. In this paper we consider a simple model of a wage dispute between labor and management. Namely, the dispute centers on the fact that labor is asking for a salary of L₀ a year, but management’s initial offer is M₀ a year, which is less than demand of labor. At each step of negotiations, the labor representatives submit a wage demand to management, and management presents its counteroffer. We except that management’s offer is less than wage demand of labor. A mathematical model of this situation is described by the system of two linear difference equations of first order.