Wage Centralization, Union Bargaining, and Macroeconomic Performance

Author/Editor:

James McHugh

Publication Date:

August 1, 2002

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 2002/143

Subject:

Employment Labor markets Real wages Wage setting Wages

English

Publication Date:

August 1, 2002

ISBN/ISSN:

9781451856354/1018-5941

Stock No:

WPIEA1432002

Pages:

26

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