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Bargaining Structure and Nominal Wage Flexibility

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Author Info
Groth, Charlotta () (Bank of England)
Johansson, Åsa () (OECD)

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Abstract

In a model with heterogenous agents, wage setting by monopoly unions and monetary policy conducted by a central bank, we show that the duration of nominal wage contracts is u-shaped in the degree of centralization, with intermediate bargaining systems yielding contracts of shorter duration and thus more flexible nominal wages than both decentralized and centralized systems. We also find the optimal level of centralization of wage bargaining to be negatively related to the degree of heterogeneity in the economy. The theoretical predictions of the model are tested on OECD data. There is empirical support for the main results regarding contract length, while there is less support for the predictions regarding the level of centralization.

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Publisher Info
Paper provided by Stockholm University, Institute for International Economic Studies in its series Seminar Papers with number 709.

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Length: 42 pages
Date of creation: 16 May 2002
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Handle: RePEc:hhs:iiessp:0709

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Postal: Institute for International Economic Studies, Stockholm University, S-106 91 Stockholm, Sweden
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Related research
Keywords: nominal wage flexibility; contract length; bargaining structure; monetary policy;

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Find related papers by JEL classification:
C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

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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.:
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    Other versions:
  2. Iversen, Torben, 1998. "Wage Bargaining, Central Bank Independence, and the Real Effects of Money," International Organization, MIT Press, vol. 52(3), pages 469-504, Summer.
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  5. Akerlof, George A & Yellen, Janet L, 1990. "The Fair Wage-Effort Hypothesis and Unemployment," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 255-83, May. [Downloadable!] (restricted)
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  9. Robert J. Flanagan, 1999. "Macroeconomic Performance and Collective Bargaining: An International Perspective," Journal of Economic Literature, American Economic Association, vol. 37(3), pages 1150-1175, September. [Downloadable!] (restricted)
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  11. Rowthorn, R E, 1992. "Centralisation, Employment and Wage Dispersion," Economic Journal, Royal Economic Society, vol. 102(412), pages 506-23, May. [Downloadable!] (restricted)
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  13. Cukierman, Alex & Webb, Steven B & Neyapti, Bilin, 1992. "Measuring the Independence of Central Banks and Its Effect on Policy Outcomes," World Bank Economic Review, Oxford University Press, vol. 6(3), pages 353-98, September.
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Cited by:
(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. Arpaia, Alfonso & Pichelmann, Karl, 2007. "Nominal and real wage flexibility in EMU," MPRA Paper 4364, University Library of Munich, Germany. [Downloadable!]
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  2. Orietta DESSY, 2005. "Nominal wage rigidity in Europe: estimates and institutional causes," Departemental Working Papers 2005-09, Department of Economics University of Milan Italy. [Downloadable!]
  3. Jonung, Lars & Fregert, Klas, 2008. "Inflation Targeting Is a Success, So Far: 100 Years of Evidence from Swedish Wage Contracts," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 2(31), pages 1-25. [Downloadable!]
    Other versions:
  4. Orietta DESSY, 2004. "Nominal wage flexibility and institutions: preliminary micro-evidence from the Europanel," Departemental Working Papers 2004-17, Department of Economics University of Milan Italy. [Downloadable!]
  5. Lombardo, Giovanni, 2004. "Inflation targeting rules and welfare in an asymmetric currency area," Discussion Paper Series 1: Economic Studies 2004,04, Deutsche Bundesbank, Research Centre. [Downloadable!]
    Other versions:
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