Wage Centralization, Union Bargaining, and Macroeconomic Performance, Issues 2002-2143
This paper addresses two questions. First, under what circumstances will a centralized wage-bargaining system offer higher output and employment than a decentralized system? Second, what is the relationship between the degree of wage centralization and inflation? The paper argues that centralized wage setting may offer worse outcomes, despite the existence of a negative coordination externality in decentralized wage setting. This is more likely to occur when the legal and institutional environment strengthens the bargaining position of the union in the centralized regime compared with unions operating in a more decentralized regime. Furthermore, as product markets become more competitive, the macroeconomic outcomes in both regimes converge, and the degree of wage centralization becomes irrelevant.
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aggregate demand aggregate price level aggregate supply bargained wage bargaining gives bargaining parameter bargaining process better macroeconomic outcomes Blanchard and Giavazzi Calmfors capitalists Central Bank Independence Centralization of Wage centralized regime centralized wage setting competitive labor market coordination failure decentralized bargaining decentralized regime decentralized unions decentralized wage setting degree of wage Economic equation 16 F-l firms firm/and firms and unions given by equation higher nominal wage increased product market inflationary surprises Kydland labor demand function leads to better level of employment macroeconomic variables market competitiveness increases monetary policy money supply Nash bargain Nominal money OECD Optimal paper participation constraints perfect competition product market competitiveness product market reform profit function Proof of proposition regime gives representative symmetric equilibrium terms of monetary union and firm union bargaining strength union's objective function utility function Wage Bargaining wage centralization wage is greater wage-setting arrangements wage-setting behavior wage-setting regime workers