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An Empirical Model of Wage Indexation Provisions in Union Contracts

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  • David Card

Abstract

Cost of living escalators are an important feature of North American labor contracts. This paper presents a measure of the response of index-linked wage increases to concurrent price increases for a sample of Canadian contracts, and then analyses this response in terms of a simple model of indexation to the aggregate price level. The model highlights the importance of aggregate price movements in conveying information about industry-specific prices. The empirical analysis confirms that industry-specific correlations between input and output prices and the Consumer Price Index are important determinants of the response of wage to prices across index contracts.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1388.

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Date of creation: Jun 1984
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Publication status: published as Card, David. "An Empirical Model of Wage Indexation Provisions in Union Contracts." Journal of Political Economy, Vol. 94, No. 3, Part 2, pp. S144-S 175, June 1986.
Handle: RePEc:nbr:nberwo:1388

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  1. Hamermesh, Daniel S, 1995. "Labour Demand and the," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 105(430), pages 620-34, May.
  2. James J. Heckman, 1976. "The Common Structure of Statistical Models of Truncation, Sample Selection and Limited Dependent Variables and a Simple Estimator for Such Models," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 5, number 4, pages 475-492 National Bureau of Economic Research, Inc.
  3. Brown, James N & Ashenfelter, Orley, 1986. "Testing the Efficiency of Employment Contracts," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 94(3), pages S40-S87, June.
  4. Ehrenberg, Ronald G & Danziger, Leif & San, Gee, 1983. "Cost-of-Living Adjustment Clauses in Union Contracts: A Summary of Results," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 1(3), pages 215-45, July.
  5. Farber, Henry S, 1978. "Individual Preferences and Union Wage Determination: The Case of the United Mine Workers," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 86(5), pages 923-42, October.
  6. David Card, 1983. "Cost-of-living escalators in major union contracts," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 37(1), pages 34-48, October.
  7. Blanchard, Olivier Jean, 1979. "Wage Indexing Rules and the Behavior of the Economy," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 87(4), pages 798-815, August.
  8. Gray, Jo Anna, 1976. "Wage indexation: A macroeconomic approach," Journal of Monetary Economics, Elsevier, Elsevier, vol. 2(2), pages 221-235, April.
  9. 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, University of Chicago Press, vol. 94(3), pages S3-S39, June.
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