Wage Interactions: Comparisons or Fall-back Options?
AbstractIt is widely accepted that wage comparisons with other firms play an important part in wage bargaining, but what is less clear is precisely why these comparisons are important. There are two main explanations. First, that fairness considerations mean workers are unwilling to see their wage fall below that offered in other similar firms. Second, that wages in other firms constitute a worker's fall-back option since if the worker leaves his current firm he will probably seek employment in the same industry. Unfortunately, it is difficult to distinguish between these two explanations since both offer similar predictions. This paper proposes that these two explanations can be differentiated by looking at the role of 'pay leaders' (firms that set the standard for later settlements and which, anecdotal evidence suggests, dominate changes in pay and conditions in an industry) in wage bargaining. If the fall back option is important then the pay leader should only influence wages in other firms to the extent that the pay leader firm constitutes one of many firms that workers could move to. If, on the other hand, fairness is important then the pay leader can have a disproportionate influence by creating the standard for other wage negotiations. Using a unique panel of data covering 321 bargaining units in the UK chemical industry between 1978 and 1989, the paper then looks at the influence of the pay leader in that industry (ICI) on wage setting in other firms. It finds that the ICI wage does indeed have a disproportion effect on wage bargains in other firms; indeed ICI's wage dominates all other measures that capture the worker's fall-back option. This supports the notion that it is fairness considerations that drive wage interactions.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Bank of England in its series Bank of England working papers with number 37.
Date of creation: Aug 1995
Date of revision:
Contact details of provider:
Postal: Publications Group Bank of England Threadneedle Street London EC2R 8AH
Phone: +44 (0)171 601 4030
Fax: +44 (0)171 601 5196
Web page: http://www.bankofengland.co.uk/
More information through EDIRC
Other versions of this item:
- Smith, Jennifer C, 1996. "Wage Interactions: Comparisons or Fall-Back Options?," Economic Journal, Royal Economic Society, vol. 106(435), pages 495-506, March.
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.:
- Clark, Simon, 1991. "Inventory Accumulation, Wages, and Employment," Economic Journal, Royal Economic Society, vol. 101(405), pages 230-38, March.
- Brown, William & Walsh, Janet, 1991. "Pay Determination in Britain in the 1980s; the Anatomy of Decentralization," Oxford Review of Economic Policy, Oxford University Press, vol. 7(1), pages 44-59, Spring.
- Tomohara, Akinori & Takii, Sadayuki, 2011. "Does globalization benefit developing countries? Effects of FDI on local wages," Journal of Policy Modeling, Elsevier, vol. 33(3), pages 511-521, May.
- Andy Haldane & Bennett McCallum & Chris Salmon, 1996. "Base Money Rules in the UK," Bank of England working papers 45, Bank of England.
- Stoyanov, Andrey & Zubanov, Nikolay, 2013. "Money on the Table? Firms' and Workers' Gains from Productivity Spillovers through Worker Mobility," IZA Discussion Papers 7702, Institute for the Study of Labor (IZA).
- Francis Breedon & Ian Twinn, 1995. "Valuation of underwriting agreements for UK rights issues: evidence from the traded option market," Bank of England working papers 39, Bank of England.
- Knell, Markus & Stiglbauer, Alfred, 2009.
"The impact of reference norms on inflation persistence when wages are staggered,"
Working Paper Series
1047, European Central Bank.
- Stiglbauer, Alfred & Knell, Markus, 2009. "The Impact of Reference Norms on Inflation Persistence When Wages are Staggered," Working Papers 153, Oesterreichische Nationalbank (Austrian Central Bank).
- repec:onb:oenbwp:y::i:153:b:1 is not listed on IDEAS
- Panos, Georgios & Theodossiou, Ioannis, 2010. "Unionism and Peer-Referencing," Stirling Economics Discussion Papers 2010-03, University of Stirling, Division of Economics.
- Marco Bianchi, 1996. "A Comparison of Methods for Seasonal Adjustment of the Monetary Aggregates," Bank of England working papers 44, Bank of England.
- Ascari, Guido & Garcia, Juan A., 2004.
"Relative wage concern: the missing piece in the contract multiplier?,"
Research in Economics,
Elsevier, vol. 58(4), pages 343-369, December.
- G. Ascari & J. A. Garcia, 1999. "Relative Wage Concern: the Missing Piece in the Contract Multiplier?," DNB Staff Reports (discontinued) 32, Netherlands Central Bank.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Publications Team).
If references are entirely missing, you can add them using this form.