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Unexpected Inflation, Real Wages, and Employment Determination in Union Contracts

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Card, David

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Abstract

This paper examines the effect of nominal contracting provisions on employment determination in union contracts. In most contracts, the nominal wage rate is wholly or partially predetermined. Real wage rates therefore contain unanticipated components that reflect unexpected price changes and the degree of indexation. The empirical analysis, based on a large sample of indexed and nonindexed contracts, suggests that unexpected real wage changes are associated with systematic employment responses in the opposite direction. The author concludes that nominal contracting provisions play a potentially important role in the cyclical properties and persistence of employment movements in the union sector. Copyright 1990 by American Economic Association.

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Publisher Info
Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 80 (1990)
Issue (Month): 4 (September)
Pages: 669-88
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Handle: RePEc:aea:aecrev:v:80:y:1990:i:4:p:669-88

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Gray, Jo Anna, 1976. "Wage indexation: A macroeconomic approach," Journal of Monetary Economics, Elsevier, vol. 2(2), pages 221-235, April. [Downloadable!] (restricted)
  2. David Card, 1988. "Strikes and Wages: A Test of a Signalling Model," NBER Working Papers 2550, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Ashenfelter, Orley C & Card, David, 1982. "Time Series Representations of Economic Variables and Alternative Models of the Labour Market," Review of Economic Studies, Blackwell Publishing, vol. 49(5), pages 761-81, Special I. [Downloadable!] (restricted)
    Other versions:
  4. Olivier J. Blanchard & Lawrence H. Summers, 1986. "Hysteresis and the European Unemployment Problem," Working papers 427, Massachusetts Institute of Technology (MIT), Department of Economics.
    Other versions:
  5. MaCurdy, Thomas E & Pencavel, John H, 1986. "Testing between Competing Models of Wage and Employment Determination in Unionized Markets," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages S3-S39, June. [Downloadable!] (restricted)
  6. L Christofides & A Oswald, 1991. "Efficient and Inefficient Employment Outcomes: A Study Based on Canadian Contract Data," CEP Discussion Papers dp0041, Centre for Economic Performance, LSE.
  7. John Abowd, 1987. "Collective Bargaining and the Division of the Value of the Enterprise," Working Papers 598, Princeton University, Department of Economics, Industrial Relations Section.. [Downloadable!]
  8. Mankiw, N Gregory, 1985. "Small Menu Costs and Large Business Cycles: A Macroeconomic Model," The Quarterly Journal of Economics, MIT Press, vol. 100(2), pages 529-38, May. [Downloadable!] (restricted)
  9. repec:fth:prinin:222 is not listed on IDEAS
  10. Douglas Holtz-Eakin & Whitney Newey & Harvey Rosen, 1987. "Wages and Hours: Estimating Vector Autoregressions with Panel Data," Working Papers 602, Princeton University, Department of Economics, Industrial Relations Section.. [Downloadable!]
  11. Fischer, Stanley, 1977. "Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 191-205, February. [Downloadable!] (restricted)
  12. Robert E. Hall, 1980. "Employment Fluctuations and Wage Rigidity," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 11(1980-1), pages 91-142. [Downloadable!]
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  14. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December. [Downloadable!] (restricted)
  15. Rosen, Sherwin, 1985. "Implicit Contracts: A Survey," Journal of Economic Literature, American Economic Association, vol. 23(3), pages 1144-75, September. [Downloadable!] (restricted)
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  16. Louis N. Christofides & Andrew J. Oswald, 1991. "Efficient and Inefficient Employment Outcomes: A Study Based on Canadian Data," NBER Working Papers 3648, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  17. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November. [Downloadable!] (restricted)
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  18. Brown, James N & Ashenfelter, Orley, 1986. "Testing the Efficiency of Employment Contracts," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages S40-S87, June. [Downloadable!] (restricted)
    Other versions:
  19. Holtz-Eakin, Douglas & Newey, Whitney & Rosen, Harvey S, 1988. "Estimating Vector Autoregressions with Panel Data," Econometrica, Econometric Society, vol. 56(6), pages 1371-95, November. [Downloadable!] (restricted)
  20. Kennan, John, 1988. "An Econometric Analysis of Fluctuations in Aggregate Labor Supply and Demand," Econometrica, Econometric Society, vol. 56(2), pages 317-33, March. [Downloadable!] (restricted)
  21. Geary, Patrick T & Kennan, John, 1982. "The Employment-Real Wage Relationship: An International Study," Journal of Political Economy, University of Chicago Press, vol. 90(4), pages 854-71, August. [Downloadable!] (restricted)
  22. Bils, M., 1989. "Testing For Contracting Effects On Employment," RCER Working Papers 174, University of Rochester - Center for Economic Research (RCER).
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  23. Phelps, Edmund S & Taylor, John B, 1977. "Stabilizing Powers of Monetary Policy under Rational Expectations," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 163-90, February. [Downloadable!] (restricted)
  24. Hamermesh, Daniel S., 1987. "The demand for labor in the long run," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 8, pages 429-471 Elsevier. [Downloadable!] (restricted)
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  25. McCallum, Bennett T, 1976. "Rational Expectations and the Natural Rate Hypothesis: Some Consistent Estimates," Econometrica, Econometric Society, vol. 44(1), pages 43-52, January. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Erica L. Groshen & Mark E. Schweitzer, 1996. "The effects of inflation on wage adjustments in firm-level data: grease or sand?," Staff Reports 9, Federal Reserve Bank of New York. [Downloadable!]
    Other versions:
  2. Paul Heidhues, 2000. "Employers’ Associations, Industry-wide Unions, and Competition," CIG Working Papers FS IV 00-11, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG). [Downloadable!]
  3. Anna Iara & Iulia Traistaru, 2004. "How Flexible are Wages in EU Accession Countries?," ERSA conference papers ersa04p191, European Regional Science Association. [Downloadable!]
    Other versions:
  4. Boyan Jovanovic & Masako Ueda, 1996. "Contracts and Money," NBER Working Papers 5637, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Giovanni Olivei & Silvana Tenreyro, 2007. "The Timing of Monetary Policy Shocks," American Economic Review, American Economic Association, vol. 97(3), pages 636-663, June. [Downloadable!]
    Other versions:
  6. Bill Collier, 2000. "The UK Wage Curve: New Evidence from the British Household Panel Survey," Studies in Economics 0010, Department of Economics, University of Kent. [Downloadable!]
  7. Jovanovic, B. & Ueda, M., 1998. "Stock-Returns and Inflation in a Principal-Agent Economy," Working Papers 98-15, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
    Other versions:
  8. Robert B. Barsky & Gary Solon, 1989. "Real Wages Over The Business Cycle," NBER Working Papers 2888, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Evan F. Koenig, 1995. "Optimal monetary policy in an economy with sticky nominal wages," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q II, pages 24-31. [Downloadable!]
  10. Kate Bishop & Tomasz Mickiewicz, 2003. "While Labour Hoarding May Be Over, Insiders’ Control Is Not. Determinants Of Employment Growth In Polish Large Firms, 1996-2001," William Davidson Institute Working Papers Series 2003-593, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
  11. Lawrence H. Summers & Jonathan Gruber & Rodrigo Vergara, 1992. "Taxation and the Structure of Labor Markets: The Case of Corporatism," NBER Working Papers 4063, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  12. Louis N. Christofides & Andrew J. Oswald, 1991. "Efficient and Inefficient Employment Outcomes: A Study Based on Canadian Data," NBER Working Papers 3648, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. Martyn Andrews & Alan Harrison, . "Testing for Efficient Contracts in Unionized Labour Market," Canadian International Labour Network Working Papers 12, McMaster University. [Downloadable!]
  14. Janet Currie Neelin, 1989. "What Do (Public Sector) Unions Do? Wage and Employment Determination Among Ontario Public School Teachers," UCLA Economics Working Papers 542, UCLA Department of Economics. [Downloadable!]
  15. David G. Blanchflower & Andrew J. Oswald, 1990. "The Wage Curve," NBER Working Papers 3181, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  16. Blanchard, Olivier & Katz, Lawrence F, 1997. "What We Know and Do Not Know about the Natural Rate of Unemployment," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 51-72, Winter. [Downloadable!] (restricted)
    Other versions:
  17. Lionel Fontagne & Daniel Mirza, 2001. "International Trade and Rent Sharing in Developed and Developing countries," Working Papers 2001-09, CEPII research center. [Downloadable!]
    Other versions:
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