The Effects of Product Market Competition on Collective Bargaining Agreements: The Case of Foreign Competition in Canada

Abstract

In this paper we estimate the effect of the financial conditions of firms on negotiated wage settlements and on employment using a sample of Canadian collective bargaining agreements from 1965 to 1983. We find that ordinary least squares estimates of the effect of quasi-rents per worker on wages are positive but very small. However, we find a much larger effect when we instrument quasi-rents with measures of foreign competition shocks. We conclude that standard estimates of rent-sharing based on contract data seriously understate the impact of product market competition on negotiated wage settlements.