Labor Contract Duration, Indexation, and Wage Adjustment: Interdependence and Inflation Propagation Mechanisms

22 Pages Posted: 9 Mar 2010

See all articles by Louis N. Christofides

Louis N. Christofides

University of Cyprus - Department of Economics; University of Guelph; CESifo (Center for Economic Studies and Ifo Institute for Economic Research); IZA Institute of Labor Economics

Amy Chen Peng

affiliation not provided to SSRN

Date Written: 2009-12-31

Abstract

We study simultaneously the three main outcomes of collective bargaining negotiations, namely indexation, non-indexed wage adjustment, and contract duration. The wage adjustment equation accommodates varying degrees of wage indexation in the current and previous contracts. The elasticity of indexation, a latent variable, deals with both the incidence and intensity of wage indexation and links consistently with the wage equation. Duration, which may change between contracts, is shown to depend on indexed and non-indexed wage adjustment, obviating the need for expected inflation in the empirical duration equations of earlier work. Complex intra- and inter-contract inflation propagation mechanisms involve expected inflation and inflation uncertainty in an essential way. The model accounts for the secular doubling of contract duration and dramatic decrease in indexation and non-contingent wage adjustment.

Suggested Citation

Christofides, Louis N. and PENG, AMY CHEN, Labor Contract Duration, Indexation, and Wage Adjustment: Interdependence and Inflation Propagation Mechanisms (2009-12-31). Industrial Relations: A Journal of Economy and Society, Vol. 49, Issue 2, pp. 226-247, April 2010. Available at SSRN: https://ssrn.com/abstract=1567172 or http://dx.doi.org/10.1111/j.1468-232X.2009.00597.x

Louis N. Christofides (Contact Author)

University of Cyprus - Department of Economics ( email )

75 Kallipoleos Street
P.O. Box 20537
1678 Nicosia
Cyprus
357 22 892448 (Phone)
357 22 892432 (Fax)

University of Guelph ( email )

Guelph, Ontario
Canada
001-519-763-8497 (Phone)

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

AMY CHEN PENG

affiliation not provided to SSRN

No Address Available

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