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Efficiency of Collective Bargaining in the Public Sector: a Natural Experiment

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  • Katrin Olafsdottir

Abstract

In this paper I develop a two-stage bargaining model determining wages and employment and apply it to the public sector. Solving the model leads to structural wage and employment equations that I estimate using data from the public sector in Iceland. Nested in the model are the major collective bargaining models (right-to-manage and efficient contracting). The model can be empirically tested to distinguish between the bargaining models. Significant changes were made to collective bargaining contracts in the public sector in Iceland at the same time the bargaining process was decentralized, which provides for a natural experiment. The model is estimated for the period before the changes were made and again after the changes had taken root. The result is that the bargaining power of unions has changed between the two periods and the bargaining structure has become more inefficient with the changes in the collective bargaining contracts.

Suggested Citation

  • Katrin Olafsdottir, 2013. "Efficiency of Collective Bargaining in the Public Sector: a Natural Experiment," Quaderni del Dipartimento di Economia, Finanza e Statistica 119/2013, Università di Perugia, Dipartimento Economia.
    • Handle: RePEc:pia:wpaper:119/2013
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    References listed on IDEAS

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    1. Currie, Janet, 1991. "Employment Determination in a Unionized Public-Sector Labor Market: The Case of Ontario's School Teachers," Journal of Labor Economics, University of Chicago Press, vol. 9(1), pages 45-66, January.
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    3. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
    4. Torberg Falch & Bjarne Strøm, 2006. "Local flexibility in wage setting: evidence from the Norwegian local public sector," Empirical Economics, Springer, vol. 31(1), pages 113-142, March.
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    6. Eberts, Randall W & Stone, Joe A, 1986. "On the Contract Curve: A Test of Alternative Models of Collective Bargaining," Journal of Labor Economics, University of Chicago Press, vol. 4(1), pages 66-81, January.
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    More about this item

    Keywords

    wage structure; collective bargaining; decentralization; public sector; trade union models;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J45 - Labor and Demographic Economics - - Particular Labor Markets - - - Public Sector Labor Markets
    • J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation

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