Working Paper: NBER ID: w3188
Authors: Louis N. Christofides; Andrew J. Oswald
Abstract: This paper studies the determinants of real wage rates using data on Canadian labour contracts signed between 1978 and 1984. Its results are consistent with Dunlop's neglected (1944) hypothesis that real pay movements are shaped by product price changes (contrary to the predictions of implicit contract theory and other models of wage inflexibility). The level of the unemployment rate is found to lower the real wage level with an elasticity between -0.04 and -0.13, whereas a Phillips Curve specification which relates wage changes to the level of the unemployment rate is not convincingly supported by the data. These results may be seen as consistent with the view that collective bargaining is a form of rent-sharing in which external unemployment weakens workers' bargaining strength.
Keywords: Real wages; Collective bargaining; Unemployment; Product prices
JEL Codes: J31; J51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| high industry product prices (L11) | real wage rates (J39) |
| higher unemployment levels (J64) | real wage rates (J39) |
| unemployment (J64) | bargaining power of workers (J52) |
| bargaining power of workers (J52) | real wage rates (J39) |