Strike, coordination, and dismissal in uniform wage settings

•First experimental test of collective labor action (strike and effort coordination).•Free-riding in large organizations with uniform wages destroys cooperation.•Collective action increases employees׳ share, but not productivity or wages.•Wages and work effort increase with a small degree of employment uncertainty.•With uniform wages productivity is sustained only if job protection is low.

We study a gift exchange game with 12 employees and one employer. When the employer can offer individually differentiated wages in a setting without collective action, we observe high levels of wages, effort choices, and total earnings. When the employer is restricted to offering a uniform wage, trust and reciprocity drop dramatically due to widespread shirking. The stepwise introduction of two collective action mechanisms, strike and coordination, increases the employees׳ share of the total earnings, but does not mitigate the free-riding problem. Adding employment risk to the collective action setup drives up wages, reduces free-riding, and leads to higher total earnings. However, this increase in productivity is not sufficient to achieve the high levels of wages, efforts and earnings that we observe with individually differentiated wages.