IDEAS home Printed from https://ideas.repec.org/p/pri/indrel/232.html
   My bibliography  Save this paper

Unexpected Inflation, Real Wages, and Employment Determination in Union Contracts

Author

Listed:
  • David Card

    (Princeton University)

Abstract

This paper presents new evidence on the relevance of nominal contracting models for employment determination in long term union contracts. A key aspect of these contracts, much emphasized in the macroeconomics literature, is the predetermined nature of nominal wages. Real wage rates therefore contain unanticipated components that reflect unexpected changes in prices and the degree of indexation in the contract. The empirical analysis, based on a sample of 1300 indexed and non-indexed contracts from the Canadian manufacturing sector, indicates that unexpected real wage changes are associated with systematic employment responses in the opposite direction. I conclude that nominal contracting provisions play a potentially important role in the cyclical properties and persistence of employment in the union sector.

Suggested Citation

  • David Card, 1988. "Unexpected Inflation, Real Wages, and Employment Determination in Union Contracts," Working Papers 612, Princeton University, Department of Economics, Industrial Relations Section..
  • Handle: RePEc:pri:indrel:232
    as

    Download full text from publisher

    File URL: https://dataspace.princeton.edu/jspui/bitstream/88435/dsp01cv43nw81x/1/232revised.PDF
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. N. Gregory Mankiw, 1985. "Small Menu Costs and Large Business Cycles: A Macroeconomic Model of Monopoly," The Quarterly Journal of Economics, Oxford University Press, vol. 100(2), pages 529-538.
    2. Holtz-Eakin, Douglas & Newey, Whitney & Rosen, Harvey S, 1989. "The Revenues-Expenditures Nexus: Evidence from Local Government Data," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(2), pages 415-429, May.
    3. John Abowd, 1987. "Collective Bargaining and the Division of the Value of the Enterprise," Working Papers 598, Princeton University, Department of Economics, Industrial Relations Section..
    4. David Card, 1988. "Strikes and Wages: A Test of a Signalling Model," NBER Working Papers 2550, National Bureau of Economic Research, Inc.
    5. repec:fth:prinin:218 is not listed on IDEAS
    6. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
    7. Geary, Patrick T & Kennan, John, 1982. "The Employment-Real Wage Relationship: An International Study," Journal of Political Economy, University of Chicago Press, vol. 90(4), pages 854-871, August.
    8. Olivier J. Blanchard & Lawrence H. Summers, 1986. "Hysteresis and the European Unemployment Problem," NBER Chapters,in: NBER Macroeconomics Annual 1986, Volume 1, pages 15-90 National Bureau of Economic Research, Inc.
    9. John M. Abowd, 1987. "Collective Bargaining and the Division of the Value of the Enterprise," NBER Working Papers 2137, National Bureau of Economic Research, Inc.
    10. Rosen, Sherwin, 1985. "Implicit Contracts: A Survey," Journal of Economic Literature, American Economic Association, vol. 23(3), pages 1144-1175, September.
    11. Douglas Holtz-Eakin & Whitney Newey & Harvey S. Rosen, 1987. "Wages and Hours: Estimating Vector Autoregressions with Panel Data," Working Papers 602, Princeton University, Department of Economics, Industrial Relations Section..
    12. Fischer, Stanley, 1977. "Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 191-205, February.
    13. Brown, James N & Ashenfelter, Orley, 1986. "Testing the Efficiency of Employment Contracts," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 40-87, June.
    14. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-1370, November.
    15. L Christofides & A Oswald, 1991. "Efficient and Inefficient Employment Outcomes: A Study Based on Canadian Contract Data," CEP Discussion Papers dp0041, Centre for Economic Performance, LSE.
    16. repec:fth:prinin:222 is not listed on IDEAS
    17. Kennan, John, 1988. "An Econometric Analysis of Fluctuations in Aggregate Labor Supply and Demand," Econometrica, Econometric Society, vol. 56(2), pages 317-333, March.
    18. Louis N. Christofides & Andrew J. Oswald, 1991. "Efficient and Inefficient Employment Outcomes: A Study Based on Canadian Data," NBER Working Papers 3648, National Bureau of Economic Research, Inc.
    19. Douglas Holtz-Eakin & Whitney Newey & Harvey Rosen, 1987. "Wages and Hours: Estimating Vector Autoregressions with Panel Data," Working Papers 602, Princeton University, Department of Economics, Industrial Relations Section..
    20. Phelps, Edmund S & Taylor, John B, 1977. "Stabilizing Powers of Monetary Policy under Rational Expectations," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 163-190, February.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    employment determination; real wages; efficient contracts;

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pri:indrel:232. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bobray Bordelon). General contact details of provider: http://edirc.repec.org/data/irprius.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.