Wage Bargaining Centralization and Macroeconomic Performance: An Experimental Approach

LINEEX Working Paper No. 26/01

31 Pages Posted: 14 Sep 2001

See all articles by Enrique Fatas

Enrique Fatas

University of East Anglia (UEA) - Centre for Behavioural and Experimental Social Science (CBESS); University of Valencia - LINEEX

J. A. Máñez

University of Valencia - Faculty of Economics

Vicente Pallardo

University of Valencia

Date Written: May 25, 2001

Abstract

This paper experimentally analyzes the effect of wage bargaining centralization (WBC) on macroeconomic performance. Our theoretical benchmark comes from that developed by Cukierman and Lippi (1999) to investigate the joint effects of monetary policy and labor market institutions on unemployment and inflation. We focus on the implications of two well known effects related to the degree of WBC: the competitive effect and the strategic effect. To do so we established a simple wage setting mechanism based on the existence of assorted levels of WBC measured by the number of unions in the labor market. In the three control treatments, unions' welfare and monetary rewards depend only on unemployment and wages, so wage pressures are expected to diminish with the level of centralization. In the other three treatments (the strategic treatments) subjects tackle both the competitive and the strategic effect as the rate of inflation affect union's utility and subject's experimental rewards. Our results show that (i) as wages are significantly higher in the control treatments than in the strategic ones, the strategic effect seems to work in the way described by our theoretical model; (ii) nevertheless, the strategic effect does not fully operate according to the theoretical forecast, as lower levels of WBC, for which competitive effect dominates, offer a better macroeconomic performance.

Keywords: Competitive and Strategic Effects, Wage Bargaining Centralisation, Macroeconomic Performance, Experimental Economics

JEL Classification: C91, L51

Suggested Citation

Fatas, Enrique and Máñez-Castillejo, Juan A. and Pallardo, Vicente, Wage Bargaining Centralization and Macroeconomic Performance: An Experimental Approach (May 25, 2001). LINEEX Working Paper No. 26/01. Available at SSRN: https://ssrn.com/abstract=283183 or http://dx.doi.org/10.2139/ssrn.283183

Enrique Fatas (Contact Author)

University of East Anglia (UEA) - Centre for Behavioural and Experimental Social Science (CBESS) ( email )

United Kingdom

University of Valencia - LINEEX ( email )

Campus Tarongers
E-46022 Valencia
Spain
+34.963.828.643 (Phone)
+963.828.415 (Fax)

Juan A. Máñez-Castillejo

University of Valencia - Faculty of Economics ( email )

Valencia, E-46022
Spain

Vicente Pallardo

University of Valencia ( email )

E-46022 Valencia, Valencia E-46022
Spain

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