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The institutional context of an empirical law: the wage curve under different regimes of collective bargaining

  • Blien, Uwe
  • Dauth, Wolfgang
  • Schank, Thorsten
  • Schnabel, Claus

The wage curve identified by Blanchflower and Oswald (1994) postulates that the wage level is a decreasing function of the regional unemployment rate. In testing this hypothesis, most empirical studies have not taken into account that differences in the institutional framework may have an impact on the existence (or the slope) of a wage curve. Using a large-scale linked employer-employee data set for western Germany, this paper provides a first test of the relevance of different bargaining regimes and of works councils for the existence of a wage curve. In pooled regressions for the period 1998 to 2006 as well as in worker-level or plant-level fixed-effects estimations we obtain evidence for a wage curve for plants with a collective bargaining agreement at firm level. The point estimates for this group of plants are close to the -0.1 elasticity of wages with respect to unemployment postulated by Blanchflower and Oswald. In this regime, we also find that works councils dampen the adjustment of wages to the regional unemployment situation. In the other regimes of plants that either do not make use of collective contracts or apply sectoral agreements, we do not find a wage curve.

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Paper provided by Friedrich-Alexander University Erlangen-Nuremberg, Chair of Labour and Regional Economics in its series Discussion Papers with number 64.

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Date of creation: 2009
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Handle: RePEc:zbw:faulre:64
Contact details of provider: Web page: http://www.arbeitsmarkt.wiso.uni-erlangen.de/english-version/

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  1. George A. Akerlof, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, Oxford University Press, vol. 97(4), pages 543-569.
  2. Fehr, Ernst & Kirchsteiger, Georg & Riedl, Arno, 1995. "Gift Exchange and Reciprocity in Competitive Experimental Markets," Economics Series 14, Institute for Advanced Studies.
  3. Schank, Thorsten & Schnabel, Claus & Wagner, Joachim, 2007. "Do exporters really pay higher wages? First evidence from German linked employer-employee data," Journal of International Economics, Elsevier, vol. 72(1), pages 52-74, May.
  4. Olaf H¸bler & Uwe Jirjahn, 2003. "Works Councils and Collective Bargaining in Germany: The Impact on Productivity and Wages," Scottish Journal of Political Economy, Scottish Economic Society, vol. 50(4), pages 471-491, 09.
  5. Badi H. Baltagi & Uwe Blien & Katja Wolf, 2008. "New Evidence on the Dynamic Wage Curve for Western Germany: 1980-2004," Center for Policy Research Working Papers 103, Center for Policy Research, Maxwell School, Syracuse University.
  6. Uwe Jirjahn, 2009. "The Introduction of Works Councils in German Establishments - Rent Seeking or Rent Protection?," British Journal of Industrial Relations, London School of Economics, vol. 47(3), pages 521-545, 09.
  7. David G. Blanchflower & Andrew J. Oswald & Peter Sanfey, 1992. "Wages, Profits and Rent-Sharing," NBER Working Papers 4222, National Bureau of Economic Research, Inc.
  8. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  9. David G. Blanchflower & Andrew J. Oswald, 1994. "Estimating a Wage Curve for Britain 1973-1990," NBER Working Papers 4770, National Bureau of Economic Research, Inc.
  10. Wagner, Joachim, 1994. "German wage curves, 1979-1990," Economics Letters, Elsevier, vol. 44(3), pages 307-311.
  11. Addison, John T & Schnabel, Claus & Wagner, Joachim, 2001. "Work Councils in Germany: Their Effects on Establishment Performance," Oxford Economic Papers, Oxford University Press, vol. 53(4), pages 659-94, October.
  12. Blanchflower, David G & Oswald, Andrew J, 1994. "Estimating a Wage Curve for Britain: 1973-90," Economic Journal, Royal Economic Society, vol. 104(426), pages 1025-43, September.
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