Bargaining Structures and European Macroeconomic Performance.

Abstract

This dissertation analyzes the macroeconomic effects of centralized bargaining between unions and employers in a multi-industry model for a small economy, trading in imperfectly competitive world markets. Industry wage levels are determined as cooperative Nash bargaining solutions on the labor dem and curve. Three criteria for centralization in bargaining are discussed. If wage contracts affect industry output prices, the presence of a national union, which coordinates the wage negotiations in different industries, leads to wage moderation, higher employment, and lower inflation. By generating inflation and by reducing aggregate and intermediate dem and , a wage increase in an industry causes a real income loss and unemployment for union members outside the industry. A national union takes this externality into account and settles for a lower nominal wage than an industry-specific union would. Yet, if aggregate dem and policies systematically absorb part of the unemployment consequences of excessive wage settlements, this conclusion could be reversed. A labor contract covering most or all industries narrows the wage variation across industries. With national labor agreements, the union's and employer's bargaining position is some average of their power when they would engage in industry-specific rather than in national negotiations. National negotiations strengthen the union's position in low-wage industries which leads to higher wages and lower employment. In high-wage industries, wages fall and emplyment goes up as result of national labor agreements. The ultimate impact on aggregate employment is indeterminate. Empirical evidence for Belgium, Germany, Sweden, and the United Kingdom confirms the hypothesis that national negotiations reduce interindustry wage differentials. Finally, a uniform wage increase for all industries significantly alters the labor market adjustments to local economic disturbances. The wage norm dampens the wage response but amplifies the employment fluctuations in the industry where the local shock occurs. Local shocks are further transmitted to the whole economy and cause employment responses, which offset part of the stronger local employment adjustment. The evolution of aggregate employment depends on the outcome of the wage negotiations and the characteristics of the labor-dem and functions.