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Wage Centralization, Union Bargaining, and Macroeconomic Performance

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  • James McHugh
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    Abstract

    This paper addresses two questions. First, under what circumstances will a centralized wage-bargaining system offer higher output and employment than a decentralized system? Second, what is the relationship between the degree of wage centralization and inflation? The paper argues that centralized wage setting may offer worse outcomes, despite the existence of a negative coordination externality in decentralized wage setting. This is more likely to occur when the legal and institutional environment strengthens the bargaining position of the union in the centralized regime compared with unions operating in a more decentralized regime. Furthermore, as product markets become more competitive, the macroeconomic outcomes in both regimes converge, and the degree of wage centralization becomes irrelevant.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 02/143.

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    Length: 26
    Date of creation: 01 Aug 2002
    Date of revision:
    Handle: RePEc:imf:imfwpa:02/143

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    Related research

    Keywords: Labor markets; wage; wages; inflation; aggregate demand; monetary policy; real wages; price level; wage bargaining; macroeconomic performance; money supply; inflation rate; wage increase; wage equation; wage determination; inflation target; monetary economics; general price level; real money; wage equations;

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    1. Cukierman, Alex & Lippi, Francesco, 1999. "Central bank independence, centralization of wage bargaining, inflation and unemployment:: Theory and some evidence," European Economic Review, Elsevier, Elsevier, vol. 43(7), pages 1395-1434, June.
    2. Helge Berger & Carsten Hefeker & Ronnie Schöb, 2004. "Optimal Central Bank Conservatism and Monopoly Trade Unions," IMF Staff Papers, Palgrave Macmillan, vol. 51(3), pages 585-605, November.
    3. Lawler, Phillip, 2000. "Centralised Wage Setting, Inflation Contracts, and the Optimal Choice of Central Banker," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 110(463), pages 559-75, April.
    4. Cubitt, Robin P, 1992. "Monetary Policy Games and Private Sector Precommitment," Oxford Economic Papers, Oxford University Press, vol. 44(3), pages 513-30, July.
    5. Blanchard, Olivier J & Giavazzi, Francesco, 2001. "Macroeconomic Effects of Regulation and Deregulation in Goods and Labour Markets," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2713, C.E.P.R. Discussion Papers.
    6. Oswald, Andrew J, 1982. "The Microeconomic Theory of the Trade Union," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 92(367), pages 576-95, September.
    7. Moene, K.O. & Wallerstein, M. & Hoel, M., 1992. "Bargaining Structure and Economic Performance," Memorandum, Oslo University, Department of Economics 10/1992, Oslo University, Department of Economics.
    8. Newell, A. & Symons, J. S. V., 1987. "Corporatism, laissez-faire and the rise in unemployment," European Economic Review, Elsevier, Elsevier, vol. 31(3), pages 567-601, April.
    9. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, Elsevier, vol. 12(1), pages 101-121.
    10. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, American Economic Association, vol. 71(5), pages 896-908, December.
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    Cited by:
    1. Andrea Bassanini & Romain Duval, 2006. "The Determinants of Unemployment across OECD Countries," Post-Print, HAL halshs-00120584, HAL.
    2. Daniels, Joseph P. & Nourzad, Farrokh & VanHoose, David D., 2006. "Openness, centralized wage bargaining, and inflation," European Journal of Political Economy, Elsevier, Elsevier, vol. 22(4), pages 969-988, December.

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