Abstract
In this paper we derive a model for the joint endogeneity of centrally contracted wages and wage drift in which central union attempts to reduce wage dispersion plays a pivotal role. Empirical results demonstrate that union efforts to level wage differentials exerted large positive effects on both centrally negotiated wage changes and wage drift. We also show that wage drift was accurately predicted and fully incorporated into central wage agreements. Central bargaining therefore dominated the wage inflation process. After the breakdown of central bargaining in 1983, however, the influence of conventional market forces on wage formation was magnified.
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