The Role of (De-)Centralized Wage Setting for Industry Dynamics and Economic Growth: An Agent-Based Analysis with the Eurace@Unibi Model

30 Pages Posted: 7 May 2019

See all articles by Herbert Dawid

Herbert Dawid

Bielefeld University - Department of Business Administration and Economics; Center for Mathematical Economics

Philipp Harting

Bielefeld University - Faculty of Business Administration and Economics

Michael Neugart

Technische Universität Darmstadt

Date Written: April 29, 2019

Abstract

In this paper, we employ the agent-based macroeconomic Eurace@Unibi Model to study the economic implications of different degrees of de-centralization in the wage setting. Starting from a baseline scenario, corresponding to a high degree of unionization, in which wages are fully centralized and indexed on economy-wide productivity gains and inflation, we investigate how an increasing level of de-centralization affects the dynamic of output, employment, inequality, and market concentration. We think of de-centralization as wages being a weighted average of an economy-wide 'union wage' and a firm-specific component depending on the firm's productivity and the experienced tightness of the labor market. Our findings suggest that stronger centralization of the wage setting process induces lower wage inequality and stronger concentration on the consumption good market. Furthermore, due to more physical investments, an economy with more centralized wage setting is characterized by higher productivity and faster economic growth.

Keywords: centralized wage bargaining, collective agreement, de-unionization, industry dynamics, inequality, growth

JEL Classification: C63, E24, J50, L16

Suggested Citation

Dawid, Herbert and Harting, Philipp and Neugart, Michael, The Role of (De-)Centralized Wage Setting for Industry Dynamics and Economic Growth: An Agent-Based Analysis with the Eurace@Unibi Model (April 29, 2019). Bielefeld Working Papers in Economics and Management No. 06-2019, April 2019 . Available at SSRN: https://ssrn.com/abstract=3383351 or http://dx.doi.org/10.2139/ssrn.3383351

Herbert Dawid (Contact Author)

Bielefeld University - Department of Business Administration and Economics ( email )

P.O. Box 100131
D-33501 Bielefeld, NRW 33501
Germany
+49-521-1064843 (Phone)
+49-521-1062994 (Fax)

Center for Mathematical Economics ( email )

Postfach 10 01 31
Bielefeld, D-33501
Germany

Philipp Harting

Bielefeld University - Faculty of Business Administration and Economics ( email )

Universitätsstraße 25
Bielefeld, 33615
Germany

Michael Neugart

Technische Universität Darmstadt ( email )

Hochschulstraße 1
Darmstadt, 64289
Germany

HOME PAGE: http://www.vwl3.wi.tu-darmstadt.de/fachgebiete_10/startseite_6/index.en.jsp

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