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Centralization of wage bargaining and the unemployment rate: revisiting the hump-shape hypothesis


  • Lorenzo Forni

    () (Banca d'Italia)


Is there a relation between wage bargaining institutions and unemployment? The humpshape hypothesis�, first introduced by Calmfors and Driffill (1988), states that countries with highly centralized and highly decentralized wage bargaining processes have a superior performance in terms of unemployment than countries with an intermediate degree of centralization. Calmfors and Driffill�s results were obtained on a sample including data from 1962 up to 1985. This paper shows that the claimed superiority in terms of unemployment of centralized countries over intermediate ones during the �60s and the �70s depended upon their high levels of government expenditure and public sector employment. The evidence shows that from the beginning of the �80s the expansion of the public sector in centralized countries slowed down considerably and, at the same time, the correlation between the degree of centralization and unemployment weakened. This evidence helps reconcile recent findings of poor correlations between measures of economic performance and indexes of bargaining systems with Calmfors and Driffill�s original results. The paper concludes by questioning the compatibility of the reported evidence with the theoretical framework proposed by CD to explain the hump-shape hypothesis.

Suggested Citation

  • Lorenzo Forni, 2004. "Centralization of wage bargaining and the unemployment rate: revisiting the hump-shape hypothesis," Temi di discussione (Economic working papers) 492, Bank of Italy, Economic Research and International Relations Area.
  • Handle: RePEc:bdi:wptemi:td_492_04

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    References listed on IDEAS

    1. Tito Boeri & Giuseppe Nicoletti & Stefano Scarpetta, "undated". "Regulation and Labour Market Performance," Working Papers 158, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    2. Hoel, Michael, 1991. "Union Wage Policy: The Importance of Labour Mobility and the Degree of Centralization," Economica, London School of Economics and Political Science, vol. 58(230), pages 139-153, May.
    3. Lars Calmfors, 2001. "Wages and Wage-Bargaining Institutions in the Emu : A Survey of the Issues," CESifo Working Paper Series 520, CESifo Group Munich.
    4. Cukierman, Alex & Lippi, Francesco, 1998. "Central Bank Independence, Centralization of Wage Bargaining, Inflation and Unemployment - Theory and Evidence," CEPR Discussion Papers 1847, C.E.P.R. Discussion Papers.
    5. Holmlund, Bertil, 1997. "Macroeconomic Implications of Cash Limits in the Public Sector," Economica, London School of Economics and Political Science, vol. 64(253), pages 49-62, February.
    6. McCallum, John, 1983. "Inflation and Social Consensus in the Seventies," Economic Journal, Royal Economic Society, vol. 93(372), pages 784-805, December.
    7. Holden, Steinar & Raaum, Oddbjorn, 1991. "Wage Moderation and Union Structure," Oxford Economic Papers, Oxford University Press, vol. 43(3), pages 409-423, July.
    8. Bean, C R & Layard, P R G & Nickell, S J, 1986. "The Rise in Unemployment: A Multi-country Study," Economica, London School of Economics and Political Science, vol. 53(210(S)), pages 1-22, Supplemen.
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    Cited by:

    1. Lorenzo Forni & Raffaela Giordano, 2003. "Employment in the Public Sector," CESifo Working Paper Series 1085, CESifo Group Munich.
    2. Francesco Spadafora, 2004. "Il pilastro privato del sistema previdenziale. Il caso del Regno Unito," Temi di discussione (Economic working papers) 503, Bank of Italy, Economic Research and International Relations Area.
    3. Paolo Finaldi Russo & Luigi Leva, 2004. "Il debito commerciale in Italia: quanto contano le motivazioni finanziarie?," Temi di discussione (Economic working papers) 496, Bank of Italy, Economic Research and International Relations Area.
    4. Berthold, Norbert & Gründler, Klaus, 2011. "Nation size and unemployment," Discussion Paper Series 116, Julius Maximilian University of Würzburg, Chair of Economic Order and Social Policy.

    More about this item


    wage negotiations; unemployment rate; public employment;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General

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