This article examines both the advocacy of social pacts in new democracies and the common assumption that labor presents the chief obstacle to social pacts. Game theory is used heuristically to demonstrate that in slack labor markets business will be more opposed to pacts than labor because individual workers will make more concessions at the plant level than labor confederation leaders will offer in peak-level negotiations. An examination of wage bargaining in the first 3 years of the new Argentine and Uruguayan democracies supports this hypothesis. The article closes with a reexamination of the wage-centered debate on inflation in contemporary new democracies.
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