Working Paper: CEPR ID: DP310
Authors: Stephen Nickell; Sushil Wadhwani
Abstract: This paper attempts to assess the relative importance of firm-specific factors (i.e., insider forces) in wage determination. Using firm-level data on 219 UK companies over the period 1974-82, it finds that a 1% rise in a firm's prices or productivity relative to the aggregate economy leads to a rise in relative wages of 0.1-0.2%. As a corollary to this, outside factors such as the aggregate wage and the unemployment rate also play an important role. There is evidence for hysteresis effects based on insider forces, but these are inversely related to the extent to which firms take national agreements into account.
Keywords: insider-outsider model; wages; hysteresis; unions
JEL Codes: 824; 831
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Insider forces (Y50) | wage determination (J31) |
| Firm's prices or productivity (L11) | relative wages (J31) |
| Outside factors (F29) | wage setting (J38) |
| Insider forces (Y50) | hysteresis effects (E32) |
| Firms' adherence to national agreements in wage bargaining (J52) | impact of insider forces (G34) |
| Financial performance (top 20%) (L25) | real wages (J31) |
| Decentralization in wage bargaining (J59) | significance of insider forces (F23) |