Excessive Wage Research Articles

European Rigidity Versus American Flexibility? The Institutional Adaptability of Collective Bargaining

According to the unified theory, higher unemployment in Europe as compared to the United States is caused by higher wage rigidity, which, in turn, results from more “inflexible” labor market institutions. Focusing on wage coordination, the empirical analysis shows that the variety of bargaining patterns across European countries and during the period1971to 1998contradicts a simple U.S.-Europe juxtaposition. Although some countries have to cope with excessive wage growth, many others do not trigger higher average wage growth and some coordination forms even show better performance than the United States. Secondly, contrary to the contention of rigidity, the labor market actors in most European countries are responsive to the performance of their bargaining system; they tend to adapt their system if wages seem to overshoot. Hence, the rigidity of Europe thesis does not hold in a more detailed cross-national and long-term analysis of institutional changes in wage bargaining.

Do excessive wage increases raise imports?: Theory and evidence

This paper uses a model of trade in vertically differentiated products to examine the effects of “excessive wage” increases (i.e. above productivity) on the volume of commodity imports. The model predicts that if the domestic country has comparative advantage in producing high quality varieties of some products, then “excessive wage” increases may result in a decrease in the volume of imports for these products. The empirical validity of the model's predictions is demonstrated with the use of disaggregated Japanese import data for the period 1967–1995. We also find that the aggregate volume of Japanese imports is not responsive to “excessive wage” changes.

Do excessive wage increases raise imports?Theory and evidence

Do excessive wage increases raise imports?Theory and evidence

Centralised wage bargaining and structural change in Sweden

There is a general consensus among scholars that centralised wage bargaining played a key role in the ability of Sweden to maintain wage moderation in the early post-World War II period. Conventional wisdom suggests that it worked through one of two mechanisms: internalisation of the negative externalities associated with excessive wage settlements or implicit contracts that favoured cooperation between capital and labour over conflict. We contend, instead, that centralised wage bargaining was introduced because Swedish firms and unions adopted the Rehn-Meidner plan. In this environment, centralised wage bargaining was used to facilitate wage compression from below and promote labour release. Wage moderation then was a result of shifts in the labour supply. In the final section of the article we argue that excessive wage compression in the 1970s sapped the morale and effort of skilled workers, pushed down productivity and profits and eventually led to the demise of centralised wage determination.

Globalisation, Competitiveness, and the Social Democratic Model

For a long time, the discussion about the impact of economic globalisation on the full employment/generous welfare state policies pursued by social democratic governments was characterised by doom and gloom. Glib neo-liberal arguments about the impossibility of maintaining social democratic policies, that were presumably hindering competitiveness through excessive wages and taxes in the new international environment were difficult to counter, because social democrats could not resort to an equally elaborate and internally consistent economic doctrine that could substitute for evidence, and the evidence was not yet in to counter these arguments on empirical grounds. Recently, careful and comprehensive comparative studies have provided evidence that, despite undeniable problems posed by economic internationalisation, social democratic welfare states and employment regimes have proven to be highly resilient (Scharpf and Schmidt, 2000; Huber and Stephens, 2001). Indeed, some kinds of traditional social democratic policy, such as an emphasis on labour mobilisation through active labour market policy and social services that make it possible to combine labour force participation with raising children, and an emphasis on human capital formation have facilitated adaptation to the new economic conditions. Moreover, newly available data on skill distribution (OECD/HRDC, 2000) and income distribution (LIS) suggest that the egalitarian thrust characteristic of social democratic policy has made an important contribution to raising literacy skills at the bottom, which in turn facilitates the integration of the entire labour force into productive activities that are competitive in high-quality markets.

Descrepancies between Supply and Demand and Adjustment Processes in the Labour Market

Changes in demand and supply in segments of the labour market will affect the labour market position of workers with an educational background in a related field of study. In one economic tradition such discrepancies between supply and demand are thought to lead to unemployment in the case of excess supply and to unfilled vacancies or skill shortages in the case of excess demand. The other neo‐classical oriented tradition expects wage adjustments to take fully account of these labour market imbalances, leading to higher wages for studies with excess demand and lower wages in case of excess supply. In practice the labour market might, on the one hand, be more flexible than suggested by the first approach, but on the other hand adjustment might be incomplete and not only wages but also other aspects of the employment relationship might be affected by a friction between supply and demand. This study examines the relationship between discrepancies between labour demand and supply on the one hand and manifestations of these tensions in the labour market experience of school‐leavers on the other hand. To investigate this relationship, a random coefficient model has been used, which allows for different adjustment processes for the various educational types, but still makes full use of all the information available in the data. The analyses provide insights about the importance of different adjustment processes and their complementarity and substitutability. We show that on average, supply surpluses lead to pressure to accept jobs at a level which is lower than the school‐leavers educational level, jobs with relatively low wages, and jobs with part‐time contracts. A direct link between supply surpluses and unemployment is only found for a few specific fields of study. Unemployment seems to occur mostly when school‐leavers do not take temporary jobs or jobs below their educational level in case of excess supply.

Do Excessive Wage Increases Raise Imports? Theory and Evidence

This paper uses a model of trade in vertically differentiated products to examine the effects of “excessive wage” increases (i.e. above productivity) on the volume of commodity imports. The model predicts that for commodities, in which the country has comparative advantage in high quality varieties, an increase in “excessive wages” may result in a decrease in the volume of imports. The empirical validity of the model's predictions is demonstrated with the use of disaggregated Japanese import data for the period 1967-95. We also find that the aggregate volume of Japanese imports is not responsive to excessive wage changes.

Why not cut pay?

I interviewed over 300 business people, labor leaders, business consultants, and counselors of unemployed people, all in the Northeast of the United States, during the recession of the early 1990's in order to learn why wages and salaries declined in only a few firms. Employers were reluctant to cut pay because they believed doing so would hurt employee morale, leading to lower productivity and current or future difficulties with hiring and retention. It was thought that these effects would in the end cost more than the savings from lower pay. There were few indications that unemployed people had excessive wage expectations. On the contrary, many unemployed were too flexible and found themselves rejected by firms as overqualified. In most companies, pay cuts were not a useful alternative to layoffs, because pay cuts would not make it worthwhile to retain many employees and because layoffs harmed morale less than would pay cuts. The findings support none of the theories of wage rigidity except those of Solow and Akerlof that emphasize morale.

Shocks and the Viability of a Fixed Exchange Rate Commitment

The incentive to renege on a commitment to a fixed exchange rate is shown to be state contingent. A fixed exchange rate policy is not viable under “unusual” circumstances, and the incentive to violate the commitment is larger in the case of contractionary shocks than in the case of expansionary shocks. The possibility that the exchange rate regime is changed in “unusual” circumstances has significant effects also under “normal” circumstances, implying systematic devaluation expectations, excessive real wages and (ex post) real rates of interest, lower output and loss of reserves, which in turn reduces the incentive to initiate a fixed exchange rate policy. Moreover, policyshifts may be contagious among countries.

From Lambs to Lions. The Changing Role of Bulgarian and Romanian Labor Unions in the Course of Democratic Transition

The role of labor unions has increasingly been the focus of scholarly analyses in recent years as the world has experienced the most encompassing wave of democratization. In his seminal article proposing a typology of four different modes of labor union behavior depending on their treatment by the former authoritarian regimes, J. Samuel Valenzuela (1989) observed that labor unions will best contribute to a successful consolidation of the new democracies if they do not press excessively for the satisfaction of narrow interests. Conversely, if their demands are too harshly denied by the new democratic elites, unions may be disloyal to new governments and thus undermine the transition process (Valenzuela 1989, 451). In a similar fashion, Adam Przeworski argued that the containment of excessive wage increase demands by unions is critical for the success of economic transition reforms (1991, 181). In her comprehensive comparative analysis of labor union and business roles in democratic transitions in Latin America and Eastern Europe, Joan M. Nelson concluded that in both economic and political reforms within the transition processes, unions can and do play crucially supportive roles but can likewise cause slowdowns, and stalemates (1994).

Evaluating Chinese Industrial Reforms: SOEs between Output Growth and Profit Decline

This paper evaluates Chinese industrial reforms against a background of conflicting evidence for rapid output growth and declining profitability in China's state‐owned enterprises (SOEs). Using enterprise level data for various ownership forms from four coastal cities it is shown that the profitability decline in SOEs has little to do with allocative inefficiency such as excess wage payments. Rather, growing competitive pressures on the domestic market are responsible for the erosion of profit rates in Chinese industry. Industrial reforms that lead to an increase in managerial, autonomy and provide material incentives to workers can be shown to have a positive impact on enterprise profit rates. The overall favourable assessment of industrial reforms in China is qualified by substantial regional differences not covered by the sample data.

Brassey's Law and the Economy of High Wages in Nineteenth-Century Economics

Recently the search by economists for a satisfactory explanation of cyclical variations in involuntary unemployment has returned to analyses of the dependence of labor productivity on the real wage. These so-called efficiency-wage hypotheses suggest that it would be rational for profit-maximizing firms to pay their workers real wages in excess of the market-clearing wage in order to minimize labor cost per efficiency unit. There are a variety of channels through which higher real wages may influence productivity, and, consequently, a plethora of efficiency-wage models have been developed. Some of these models have direct antecedents, especially in the internal labor market literature of labor economics and in earlier attempts to explain wage rigidity in macroeconomics (Akerlof and Yellen 1986; Katz 1986).

Rent sharing in the European airline industry

To the extent that product market competition affects managerial incentives to control costs, price-cost margins offer a poor guide to the evaluation of market power. We propose a method to evaluate simultaneously both market power and its pass through on cost. We focus on rent sharing between unions and management as a mechanism through which costs are endogenised. We develop and estimate a structural model of competition where wages are endogenously determined in the first stage, with a price-setting market game following in the second stage. This structural model is then estimated using data for 8 European airlines from 1976–1990. We find a strong support for the hypothesis that lax competition induces extensive rent sharing through excessive wages.

Russian unemployment and the excess wages tax

Russian unemployment and the excess wages tax

Did High Wages or High Interest Rates Bring Down the Weimar Republic? A Cointegration Model of Investment in Germany, 1925–1930

This article offers a new interpretation of the low level of investment in Germany during the interwar period. Earlier contributions attributed the slow expansion of capital stock either to excessive wages due to state intervention and unionization or to the high cost of capital. These hypotheses are tested by estimating a cointegration model of investment. Counterfactual simulations demonstrate that lower wages would have lowered investment still further and that high interest rates acted as the main brake on investment during the second half of the 1920s.

The Dynamics of Inflation and Capital Accumulation in Previously Centrally Planned Economies: A Theoretical Framework

The corporate governance problem of state enterprises in former communist economies can give rise to excessive wage claims and/or capital decumulation. This paper focuses on these problems, highlighting the dynamic links between wage behavior, the fiscal deficit, inflation, and the capital stock. The fiscal impact of higher wages works through the reduction in public enterprises' profits and, hence, government revenues from profit taxes. If wage and tax claims on firms' revenue are 'too high,' capital can be run down until wage claims are moderated by the fall in output. Copyright 1995 by The London School of Economics and Political Science.

Excess Wages Tax

Excess wages tax (EWT) is a tax-based incomes policy instrument introduced in many centrally-planned economies and still used in some FSU and Eastern European countries in transition. The main macroeconomic goal of EWT is to curb inflationary pressures by penalizing through taxation the “excessive” wage awards granted by enterprises in the course of wage and price liberalization. In this paper, effects of EWT on the behavior of a profit-maximizing enterprise under monopsony, its incidence on wages and profits, and its impact on inflation are analyzed. The effect of EWT on an enterprise that maximizes workers’ income is also examined with some observations on EWT’s impact on managerial behavior. Finally, recent experience with EWT is assessed and compared to that suggested by the model.

Excess Wages Tax

Excess Wages Tax

Priced Out of work?

New EconomyVolume 1, Issue 1 p. 7-12 Priced Out of work? Excessive wages are often blamed for unemployment: but is this fair? David Blackaby, David BlackabySearch for more papers by this authorLester Hunt, Lester HuntSearch for more papers by this author David Blackaby, David BlackabySearch for more papers by this authorLester Hunt, Lester HuntSearch for more papers by this author First published: March 1994 https://doi.org/10.1111/j.1468-0041.1994.tb00206.xAboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Share a linkShare onFacebookTwitterLinked InRedditWechat Volume1, Issue1March 1994Pages 7-12 RelatedInformation

Much ado about nothing? A note on investment and wage pressure in Weimar Germany, 1925-29

According to the Borchardt hypothesis, state ar bitration during Weimar's relatively stable years (1925-29) led to excessive wage pressure. As a direct consequence, profits were squeezed hard and investment fell, giving rise to a 'small-cake economy' which, in the end, had to fail. Borchardt's interpretation, hotly debated amongst German and Anglo-Saxon scholars for some time, is challenged in this paper. I first discuss the shifts in basic demographic variables during the early decades of the twentieth century. It will emerge that declining population growth rates are largely responsible for the changes in macro-economic va riables noted by Borchardt. Finally, this article demonstra tes why the indicator of wage pressure used in previous work is fundamentally flawed. Ever since Knut Borchardt challenged the conventional wisdom about the Wei mar Republic's economy in general and the scope for action during the Great Depression in particular1 economic historians have continued to debate his conclusions.2 The so-called Borchardt hypothesis has two elements that are * Address all communications to Hans-Joachim Voth, European University Institute, Badia Fiesolana, Via dei Roccettini 9,1-50016 San Domenico Di Fiesole, Italy. The author wishes to thank seminar audiences at St. Antony's College, Oxford and EUI, Florence, for valuable comments. Albert Carreras, Peter Hertner and Tony Ni cholls were kind enough to comment on earlier versions. The DAAD has once more provided generous financial assistance. All remaining errors and inconsistencies are my own. 1 K. Borchardt, 'Zwangslagen und Handlungsspielr?ume in der gro?en Wirtschafts krise der fr?hen drei?iger Jahre', in: Jahrbuch der Bayerischen Akademie der Wis senschaften 1979, pp. 85-132; reprinted in: Ibid., Wachstem, Krisen, Handlungs spielr?ume der Wirtschaftspolitik, G?ttingen 1982, pp. 165-82. 2 The most important contributions are: C.-L. Holtfrerich, 'Zu hohe L?hne in der Weimarer Republik? Bemerkungen zur Borchardt-These', Geschichte und Gesell schaft 10 (1984), pp. 122-41; H. James, 'Economic Reasons for the Collapse of the Weimar Republic', in: I. Kershaw (ed.), Weimar: Why Did German Democracy Fail?,