Abstract
AbstractAlthough coordination of wage bargaining probably affects entry barriers and competition in product markets, research on price determination has typically not considered such factors. We argue that the price markup depends on wage setting institutions and present empirical evidence in form of estimated price equations in a panel of 15 OECD countries. The estimates show that consumer prices may be as much as 21 percent higher in coordinated compared to uncoordinated countries, solely due to the effect of coordination on the markup. Since other studies find that coordination has a dampening effect on wages, this may explain why there is no clear effect of coordination on unemployment.
Highlights
Labor market characteristics like unemployment benefits, employment protection, union power, union coverage and union coordination have received considerable attention in the economic and political literature, since they offer a potential explanation for the relative low unemployment rate in the US and the persistently high unemployment in many European countries
One of the main results in these studies is that countries with a high degree of coordination of wage bargaining are associated with the best macroeconomic performance and the lowest unemployment when controlling for other factors
In model M2 we present a Cross-Section SUR (PCSE) estimation
Summary
Labor market characteristics like unemployment benefits, employment protection, union power, union coverage and union coordination have received considerable attention in the economic and political literature, since they offer a potential explanation for the relative low unemployment rate in the US and the persistently high unemployment in many European countries. There has been a substantial amount of empirical research aiming at identifying the effect of such factors on the unemployment level. One of the main results in these studies is that countries with a high degree of coordination of wage bargaining are associated with the best macroeconomic performance and the lowest unemployment when controlling for other factors. The evidence is inconclusive when it comes to identifying the effect of coordination at an intermediate level relative to a low level. It is commonly concluded that the effect of coordination on unemployment is ambiguous
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