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

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  • Card, David

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.

Suggested Citation

  • Card, David, 1990. "Unexpected Inflation, Real Wages, and Employment Determination in Union Contracts," American Economic Review, American Economic Association, vol. 80(4), pages 669-688, September.
  • Handle: RePEc:aea:aecrev:v:80:y:1990:i:4:p:669-88
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    References listed on IDEAS

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    1. Olivier J. Blanchard & Lawrence H. Summers, 1986. "Hysteresis and the European Unemployment Problem," NBER Chapters,in: NBER Macroeconomics Annual 1986, Volume 1, pages 15-90 National Bureau of Economic Research, Inc.
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    6. Holtz-Eakin, Douglas & Newey, Whitney & Rosen, Harvey S, 1989. "The Revenues-Expenditures Nexus: Evidence from Local Government Data," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(2), pages 415-429, May.
    7. 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 163-190, February.
    8. John M. Abowd, 1987. "Collective Bargaining and the Division of the Value of the Enterprise," NBER Working Papers 2137, National Bureau of Economic Research, Inc.
    9. Kennan, John, 1988. "An Econometric Analysis of Fluctuations in Aggregate Labor Supply and Demand," Econometrica, Econometric Society, vol. 56(2), pages 317-333, March.
    10. 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.
    11. Brown, James N & Ashenfelter, Orley, 1986. "Testing the Efficiency of Employment Contracts," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 40-87, June.
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    18. 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.
    19. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
    20. 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 854-871, August.
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    More about this item

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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