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The Determinants of Wage Changes in Indexed.and Nonindexed Contracts: A Switching Model

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  • Prescott, David
  • Wilton, David

Abstract

Wage changes in a sample (1979-86) of Canadian wage contracts are analyzed. The sample is split into cost-of-living allowance (COLA) and non-COLA contracts. Econometric estimation corrects for sample selectivity bias. In non-COLA contracts, the unemployment rate and a proxy for expected inflation are significant. Expected industry price changes and productivity changes exert smaller but significant effects. In COLA contracts, ex ante inflation coverage ranges between 60 percent and 100 percent of expected inflation. Catch-up for previous uncompensated.inflation, the unemployment rate, and expected inflation are also significant. A common wage structure across COLA and non-COLA contracts is rejected by the data. Copyright 1992 by University of Chicago Press.

Suggested Citation

  • Prescott, David & Wilton, David, 1992. "The Determinants of Wage Changes in Indexed.and Nonindexed Contracts: A Switching Model," Journal of Labor Economics, University of Chicago Press, vol. 10(3), pages 331-355, July.
  • Handle: RePEc:ucp:jlabec:v:10:y:1992:i:3:p:331-55
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    Cited by:

    1. Ghosal, Vivek & Loungani, Prakash, 1996. "Evidence on Nominal Wage Rigidity from a Panel of U.S. Manufacturing Industries," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(4), pages 650-668, November.
    2. J. Ignacio García-Pérez & Marisa Hidalgo-Hidalgo & J. Antonio Robles-Zurita, 2011. "Does grade retention affect achievement? Some evidence from Pisa," Working Papers 2011/37, Institut d'Economia de Barcelona (IEB).
    3. J. Ignacio Garcia-Perez & Juan F. Jimeno, 2007. "Public Sector Wage Gaps In Spanish Regions," Manchester School, University of Manchester, vol. 75(4), pages 501-531, July.
    4. Murphy, Kevin J., 2000. "What effect does uncertainty have on the length of labor contracts?," Labour Economics, Elsevier, vol. 7(2), pages 181-201, March.
    5. Louis Christofides & Chen Peng, 2006. "Major Provisions of Labour Contracts and their Theoretical Coherence," CESifo Working Paper Series 1700, CESifo Group Munich.

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