Real Wage Determination in Collective Bargaining Agreements

NBER WORKING PAPER SERIES

REAL WAGE DETERMINATION IN COLLECTIVE BARGAINING AGREEMENTS

Louis N. Christofides

Andrew J. Oswald

Working Paper No. 3188

NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 November 1989

The authors are grateful to C. Bean for helpful comments, to Sean Reynolds for computing and research assistance and to Nato, ESRC and SSHRC for financial assistance. The paper was read at the IRA World Congress in Athens, where helpful comments were received from L. Reichlin. Readers who wish to obtain a data appendix or results not published in this paper should contact Louis N. Christofides, Department of Economics, University of Guelph, Guelph, Ontario, Canada N1G 2W1. The data itself is the property of the Bureau of Labor Information, Labor Canada, Ottawa, K1A 0J2. This paper is part of NBER's research program in Labor Studies. Any opinions expressed are those of the authors not those of the National Bureau of Economic Research.

NBER Working Paper #3188 November 1989

REAL WAGE DETERMINATION IN COLLECTIVE BARGAINING AGREEMENTS

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.

Louis N. Christofides Department of Economics...