The Role of Wage Bargaining Institutions in the Phillips Curve Flattening

BETA Working Paper 2022-21

34 Pages Posted: 13 Jun 2022 Last revised: 26 Jul 2022

See all articles by Francesco De Palma

Francesco De Palma

affiliation not provided to SSRN

Samuel Ligonnière

affiliation not provided to SSRN

Jamel Saadaoui

University of Strasbourg

Yann Thommen

University of Strasbourg - Beta, CNRS

Date Written: May 25, 2022

Abstract

We investigate the role of collective wage bargaining institutions on the relationship between wage growth and unemployment, that is, the wage Phillips curve. Based on a labour market model with frictions and collective bargaining, we hypothesize that when the economy deteriorates, wages fall less in parts of the economy covered by collective wage agreements negotiated by trade unions at a centralized level than in economies with bargaining fully decentralized within companies. We move from theory to empirical analysis using regional NUTS-2 data from European countries, which show evidence that the wage Phillips curve flattens when unemployment is high—and gets steeper when the labor market is overheated —, in economies where the sectoral or cross-sectoral levels play a role in the collective wage bargaining. We also find that from a level of centralization intermediate between the company and the sector levels, the wage Phillips curve is twice as flat.

Keywords: Phillips curve, Unemployment, Inflation, Wages, Collective bargaining

JEL Classification: E24, E31, E32, J50

Suggested Citation

De Palma, Francesco and Ligonnière, Samuel and Saadaoui, Jamel and Thommen, Yann, The Role of Wage Bargaining Institutions in the Phillips Curve Flattening (May 25, 2022). BETA Working Paper 2022-21, Available at SSRN: https://ssrn.com/abstract=4119670 or http://dx.doi.org/10.2139/ssrn.4119670

Francesco De Palma

affiliation not provided to SSRN

Samuel Ligonnière

affiliation not provided to SSRN

Jamel Saadaoui (Contact Author)

University of Strasbourg ( email )

61 Avenue de la Forêt Noire
Strasbourg, Alsace 67000
France

HOME PAGE: http://www.jamelsaadaoui.com/

Yann Thommen

University of Strasbourg - Beta, CNRS ( email )

61 avenue de la Forêt Noire
Strasbourg, 67000
France

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