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Wage Interactions: Comparisons or Fall-Back Options?

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  • Smith, Jennifer C

Abstract

This paper examines the role played by wage comparisons in pay bargaining when workers have a fall-back option. The effect on wages due to wage comparisons can be difficult to distinguish from the effect of the fall-back wage. It is shown that the use of wages of a recognized 'pay leader' resolves this problem. The empirical work employs a unique panel of data covering 321 unionized bargaining units in the UK chemicals industry between 1978 and 1989. Results support anecdotal reports of pay leadership and suggest that wages elsewhere matter because comparisons are important to workers. In this sense, the results support the notion that 'fairness considerations' drive wage interactions. Copyright 1996 by Royal Economic Society.

Suggested Citation

  • Smith, Jennifer C, 1996. "Wage Interactions: Comparisons or Fall-Back Options?," Economic Journal, Royal Economic Society, vol. 106(435), pages 495-506, March.
  • Handle: RePEc:ecj:econjl:v:106:y:1996:i:435:p:495-506
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    1. Clark, Simon, 1991. "Inventory Accumulation, Wages, and Employment," Economic Journal, Royal Economic Society, vol. 101(405), pages 230-238, March.
    2. Nickell, Stephen J, 1987. "Why Is Wage Inflation in Britain So High?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 49(1), pages 103-128, February.
    3. 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.
    4. Ingram, Peter N, 1991. "Ten Years of Manufacturing Wage Settlements: 1979-89," Oxford Review of Economic Policy, Oxford University Press, vol. 7(1), pages 93-106, Spring.
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    Cited by:

    1. Camarero, Mariam & D'Adamo, Gaetano & Tamarit, Cecilio, 2014. "Wage leadership models: A country-by-country analysis of the EMU," Economic Modelling, Elsevier, pages 2-11.
    2. 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.
    3. Knell, Markus & Stiglbauer, Alfred, 2009. "The impact of reference norms on inflation persistence when wages are staggered," Working Paper Series 1047, European Central Bank.
    4. Stoyanov, Andrey & Zubanov, Nikolay, 2014. "The distribution of the gains from spillovers through worker mobility between workers and firms," European Economic Review, Elsevier, vol. 70(C), pages 17-35.
    5. Latreille, Paul L & Manning, Neil, 2000. " Inter-industry and Inter-occupational Wage Spillovers in UK Manufacturing," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 62(1), pages 83-99, February.
    6. Andy Haldane & Bennett McCallum & Chris Salmon, 1996. "Base Money Rules in the UK," Bank of England working papers 45, Bank of England.
    7. Marco Bianchi, 1996. "A Comparison of Methods for Seasonal Adjustment of the Monetary Aggregates," Bank of England working papers 44, Bank of England.
    8. Anthony Yates, 1998. "Downward nominal rigidity and monetary policy," Bank of England working papers 82, Bank of England.
    9. Stoyanov, Andrey & Zubanov, Nick, 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).
    10. 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.
    11. Panos, Georgios & Theodossiou, Ioannis, 2010. "Unionism and Peer-Referencing," Stirling Economics Discussion Papers 2010-03, University of Stirling, Division of Economics.
    12. Stoyanov, A. & Zubanov, N.V., 2012. "Productivity Gains from Worker Mobility and their Distribution between Workers and Firms," ERIM Report Series Research in Management ERS-2012-009-STR, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    13. repec:onb:oenbwp:y::i:153:b:1 is not listed on IDEAS
    14. Panos, Georgios A. & Theodossiou, Ioannis, 2010. "Unionism and Peer-Referencing," SIRE Discussion Papers 2010-122, Scottish Institute for Research in Economics (SIRE).
    15. 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.

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