Pattern Bargaining and Wage Leadership in a Small Open Economy
2009 (English)Report (Other academic)
Pattern bargaining where the tradables (manufacturing) sector acts as wage leader is a common form of wage bargaining in Europe. Our results question the conventional wisdom that such a bargaining set-up produces wage restraint. We find that all forms of pattern bargaining give the same macroeconomic outcomes as uncoordinated bargaining under inflation targeting and a flexible exchange rate. Under monetary union (a fixed exchange rate) wage leadership for the non-tradables sector is conducive to wage restraint and high employment, whereas wage leadership for the tradables sector is not. Loss aversion and comparison thinking in wage setting, where unions evaluate the utility of the wages of their members relative to a wage norm, may lead the follower to set the same wage as the leader. Such equilibria can arise when the leader sector is the smaller sector and promote high employment.
Place, publisher, year, edition, pages
Stockholm: IIES , 2009. , 44 p.
Seminar Paper / Institute for International Economic Studies, Stockholm University. (Online), ISSN 1653-610X ; 760
pattern bargaining, wage setting, inflation targeting, monetary regimes
IdentifiersURN: urn:nbn:se:su:diva-42311OAI: oai:DiVA.org:su-42311DiVA: diva2:345146