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Pattern Bargaining and Wage Leadership in a Small Open Economy

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  • Calmfors, Lars

    () (Institute for International Economic Studies, Stockholm University)

  • Larsson, Anna

    () (Department of Economics, Stockholm University)

Abstract

Pattern bargaining where the tradables (manufacturing) sector acts as wage leader is a common form of wage bargaining in Europe. Our results question the conventional wisdom that such a bargaining set-up produces wage restraint. We find that all forms of pattern bargaining give the same macroeconomic outcomes as uncoordinated bargaining under inflation targeting and a flexible exchange rate. Under monetary union (a fixed exchange rate) wage leadership for the non-tradables sector is conducive to wage restraint and high employment, whereas wage leadership for the tradables sector is not. Loss aversion and comparison thinking in wage setting, where unions evaluate the utility of the wages of their members relative to a wage norm, may lead the follower to set the same wage as the leader. Such equilibria can arise when the leader sector is the smaller sector and promote high employment.

Suggested Citation

  • Calmfors, Lars & Larsson, Anna, 2009. "Pattern Bargaining and Wage Leadership in a Small Open Economy," Seminar Papers 760, Stockholm University, Institute for International Economic Studies.
  • Handle: RePEc:hhs:iiessp:0760
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    References listed on IDEAS

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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, vol. 44(S1), pages 2-11.
    2. Marit Linnea Gjelsvik & Victoria Sparrman & Ragnar Nymoen, 2015. "Have inflation targeting and EU labour immigration changed the system of wage formation in Norway?," Discussion Papers 824, Statistics Norway, Research Department.
    3. Aleksandra Parteka & Joanna Wolszczak-Derlacz, 2015. "Integrated sectors - diversified earnings: the (missing) impact of offshoring on wages and wage convergence in the EU27," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 13(3), pages 325-350, September.
    4. Andreas Wörgötter & Sihle Nomdebevana, 2018. "Working Paper – WP/18/01- Aggregate public-private remuneration patterns in South Africa," Working Papers 8421, South African Reserve Bank.
    5. Goran Vuksic, 2012. "Sectoral wage dynamics and intersectoral linkages in the context of export competitiveness: the case of Croatia," wiiw Balkan Observatory Working Papers 99, The Vienna Institute for International Economic Studies, wiiw.
    6. Lars Calmfors, 2012. "Sweden - from Macroeconomic Failure to Macroeconomic Success," CESifo Working Paper Series 3790, CESifo Group Munich.
    7. Mariam Camarero & Gaetano D’Adamo & Cecilio Tamarit, 2014. "The role of Institutions in explaining wage determination in the Euro Area: a panel cointegration approach," Working Papers 2014/15, Economics Department, Universitat Jaume I, Castellón (Spain).
    8. Wörgötter, Andreas & Nomdebevana, Sihle, 2018. "Aggregate public-private remuneration patterns in South Africa," ECON WPS - Vienna University of Technology Working Papers in Economic Theory and Policy 02/2018, Vienna University of Technology, Institute for Mathematical Methods in Economics, Research Group Economics (ECON).

    More about this item

    Keywords

    pattern bargaining; wage setting; inflation targeting; monetary regimes;

    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
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General

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