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How increased product market competition may be reshaping America's labor markets

  • John V. Duca

In this article, John Duca discusses how and why compensation has become more market sensitive in the United States. Specifically, he illustrates how fiercer product market competition can theoretically reduce the prevalence of nominal wage contracts and of indexation in such contracts, while boosting the use of profit sharing. He also summarizes empirical findings supporting the view that increased competition has reduced the use of nominal contracts and the indexation of contract wages, and presents limited, inconclusive data supporting the view that greater product market competition has boosted the overall use of profit sharing. Consistent with aggregate movements in labor practices and a measure of the degree of goods market competition, industry-level data are presented that indicate these changes in labor practices are most evident in sectors that have experienced either deregulation or increased foreign competition since the late 1970s. While more research needs to be done, particularly using industry-level data, new theoretical arguments and empirical evidence support, but do not conclusively prove, the view that increased product market competition has been reshaping America's labor markets.

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File URL: http://www.dallasfed.org/assets/documents/research/er/1998/er9804a.pdf
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Article provided by Federal Reserve Bank of Dallas in its journal Economic and Financial Policy Review.

Volume (Year): (1998)
Issue (Month): Q IV ()
Pages: 2-16

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Handle: RePEc:fip:fedder:y:1998:i:qiv:p:2-16
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  1. Winston, Clifford, 1993. "Economic Deregulation: Days of Reckoning for Microeconomists," Journal of Economic Literature, American Economic Association, vol. 31(3), pages 1263-89, September.
  2. Holland, A Steven, 1986. "Wage Indexation and the Effect of Inflation Uncertainty on Employment:An Empirical Analysis," American Economic Review, American Economic Association, vol. 76(1), pages 235-43, March.
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