Abstract We use novel surveys of firms and workers, linked to administrative employer-employee data, to study the prevalence and importance of individual bargaining in wage determination. We show that simple survey questions accurately elicit firms’ bargaining strategies. Using the elicited strategies for 772 German firms, we document that the majority of firms are willing to engage in individual wage bargaining. Labor market factors predict firms’ strategies better than firm characteristics. Survey responses from nearly 10,000 full-time workers indicate that most workers provide their salary expectations before they receive a job offer. Most outside offers are rejected, with the worker remaining at the incumbent firm. There is substantial heterogeneity in workers’ bargaining behavior, which translates into within-firm wage inequality. Firms that set pay via individual bargaining have a 3 percentage point higher gender wage gap.

Outward FDI and income inequality in the home country: The role of wage bargaining

We examine how income taxes affect international mobility and wages. We study a Dutch preferential tax scheme for migrants, which introduced an income threshold for eligibility in 2012. The threshold is low relative to similar schemes in other countries, thereby offering eligibility to migrants with mid-level earnings. We find migration more than doubles closely above the income threshold, while migration below the threshold remains unchanged. These effects appear to be driven by additional migration, while wage bargaining responses are limited. We estimate a migration elasticity ranging from 1.6 to 2.7, somewhat higher than most studies on high-income migrants have found. (JEL H24, H31, J15, J31, J82)

This article explores the dynamics of the wage-price spiral, a self-reinforcing mechanism wherein rising wages lead to increased prices, which in turn drive further wage demands. The study provides a comprehensive review of theoretical frameworks, historical examples, and post-pandemic labor market shifts, focusing on how wage-setting behavior and inflation expectations interact across different institutional settings. Using a macroeconomic lens, the research analyzes both advanced and emerging economies, paying particular attention to labor force participation, foreign direct investment, and trade openness in shaping inflationary outcomes. The findings emphasize the importance of credible monetary policy, coordinated wage bargaining, and macroeconomic resilience in managing inflation. The article concludes by offering policy recommendations tailored to Vietnam’s economic context, grounded in econometric evidence such as OLS regression, Granger causality, and cointegration analysis.

The Malaysian government has implemented the Progressive Wage Policy (PWP) to accelerate wage growth and address the low contribution of employee compensation (CE) to Gross Domestic Product The objective, as outlined in the Twelfth Malaysian Plan (RMKe-12), is to achieve a median wage of RM2,700 per month by 2025 and attain an annual productivity growth rate of 3.7% from 2021 to 2025[22]. In line with this policy, Social Security Organization (PERKESO), an organization under the Ministry of Human Resource, has taken proactive measures to analyze and model wage growth forecasting for the upcoming years. This paper aims to develop a forecasting model by examining the relationship between wages and various macroeconomic and microeconomic variables, including the unemployment rate. The methodology employs both Phillips Curve and Artificial Intelligence Model to predict wage increments, covering the period from 2016 to 2023. The approach ensures the development of a robust model supported by big data. This study establishes a predictive relationship within a stylistic framework of wage bargaining, indirectly fostering dynamic ecosystems between the prevailing economic conditions and employers' market trends in the Macro Model. The model considers the institutional structure of the current economic condition and employers' market trends, incorporating factors based on economic indicators and contributions. Additionally, a Machine Learning Gradient Boosting Regressor Model is utilized to predict the output from micro models. This enhances the overall reliability of the model. Significantly, the methodological innovation revolves around the integration of Macro and Micro Models, utilizing detailed data from job placements and monthly contributions spanning from 2020 to 2023 for the wage forecast framework. This distinct approach facilitates forecast development through model averaging techniques customized to maximize the accuracy of wage increase and estimated salary predictions.

ABSTRACT The differences in industrial relations systems between Malaysia and Singapore present an interesting theoretical puzzle. Despite once being united under the Pan-Malayan General Labour Union, the labour movements of Malaysia and Singapore have since diverged in both trade union structure and the institutional arrangements for wage bargaining: corporatist collective bargaining in Singapore, and labour marginalization in Malaysia. Existing scholarship tends to converge around one of three explanations for this divergence: both countries’ developmental stages, their industrialization strategies or the need for authoritarian parties to secure political dominance. However, existing explanations fail to account for instances where both states had common developmental stages, industrialization strategies and political interests, but still had diverging industrial relations arrangements. To explain this puzzle, I argue that the relatively greater power resources of Singaporean labour in the critical postwar period allowed it to exact significant institutional concessions from the state, while the relative weakness of Malaysian labour exposed it to successive waves of repression. In making this argument, I draw upon power resource theory, which proposes that industrial relations systems are the result of the relative differences in power resources among the different actors within a given state.

ABSTRACT This article examines the evolving role and attitudes of Finnish employers towards centralised bargaining from the late 1960s to the early 2020s. Employing a qualitative historical approach and analysing archival documents from Finnish peak employers’ associations, we explore the motivations behind employers’ commitment to centralised bargaining, from wage moderation and competitiveness to broader political and societal goals. Recently, there has been a shift towards ‘coordinated decentralisation’, where employers advocate decentralised practices while maintaining coordination among themselves. The findings contribute to discussions on the evolution of industrial relations by offering insights into how national contexts, transnational trends, economic cycles, and government policies influence employer actions, which in turn have a significant impact on labour market relations and bargaining systems. We suggest notions of surface centralisation and decentralisation to characterise the complexities behind an apparently centralised or decentralised system of wage bargaining.

Abstract Although European institutions and national governments have long pushed for a more decentralized wage bargaining structure, in some countries, it is difficult for company- or establishment-level negotiations to take place. This paper offers an interpretation of this difficulty based on workers’ optimal choices in a strategic framework. I construct an equilibrium matching model that explains under which conditions it is best for workers to negotiate their entire wage at the sectoral level (one-tier bargaining) or to allow for a fraction of their salary be negotiated at the company level (two-tier bargaining). Workers’ strategies do not simply depend on their own characteristics or on those of their firm. They also depend on the decisions of all other employees in the sector. Three alternative Nash equilibria may occur: one-tier bargaining for all workers; two-tier bargaining for all workers; and two-tier bargaining for the most productive workers and one-tier bargaining for all other workers. The prevalence of a specific equilibrium over others hinges on some critical factors, notably the elasticity of the matching function and the properties of the productivity distribution.

ABSTRACT Several OECD countries have recently experienced a simultaneous rise in income and wealth inequality and a decline in labor productivity growth. We provide an investigation of these stylized facts that focuses on the weakening of labor market institutions. For this purpose, we develop a two-class, demand-led model of growth and the distribution of income and wealth with endogenous technical change and explicit wage bargaining between workers and capitalists. We derive the conditions under which a worsening of labor market institutions that tilts the distribution of income and wealth in favor of the capitalist class lowers the equilibrium accumulation rate, the growth rate of labor productivity and employment.

This paper examines the effects of inflation on both worker and employers wage bargaining on the labor market and the impact on distribution and economic development through two behavioral experiments. The findings of experiment A support the wage lag hypothesis, indicating that inflation alters the distribution, favoring companies while disadvantaging workers. Later workers then enforced higher wages, which overcompensated the expansionary effect, why expansive monetary policy which result in inflation is likely to be ineffective over the long term, detrimental and unfair. Experiment B explored how workers respond to inflation in wage demands and found that they do not act rationally. Instead, there were perception thresholds, showing that wage adjustments happen first disproportionally in reaction to inflation and then abrupt. This challenges the rationality assumption in DSGE-models.

Wage Bargaining and Inflation: Perception Thresholds in the Labor Market and the Impact on Distribution and Economic Development -Evidence From Two Behavioral Experiments

Statutory minimum wages have become an important tool for regulating labor markets. One major reason is the decline in collective wage bargaining. But how can minimum wages be justified? We show that their best justification does not lie in their economic effects but in the respect for social contributors that they express. The article takes an innovative interdisciplinary approach, bridging political philosophy and comparative political economy. We first discuss existing justifications in political practice and theory. We then show how a distinctive and robust justification should regard minimum wages as paying necessary respect to those who fulfill their obligation to contribute to social cooperation. Our justification thus suggests a new concept of economic citizenship and advances recognition theory applied to work. We outline further implications of the argument, such as the desirability of setting minimum wages through collective bargaining, and a tentative case for a maximum income.

Firm's outsourcing decision changes the match surplus to be split as well as the rule for splitting the surplus with employees. This study proposes and estimates a simple wage bargaining model that tracks down the time variation of revenue, cost, and input variables while taking the outsourcing patterns as given. The model is examined using a firm-level panel data containing administrative information on income statement and balance sheet provided by the National Tax Service of South Korea. Evidence suggests that outsourcing firms tend to have (i) higher bargaining power against employees, (ii) a larger fixed cost of bargaining failure, and (iii) match surplus more responsive to the cost of purchases. These observed patterns are strong for large-sized firms with 300 or more employees.

Monetary Policy and Unemployment in Morocco: A DSGE Model Approach with Labor Market Frictions and Nash Wage Bargaining

Immigration, legal status and fiscal impact

Past research has examined the link between initiatives promoting entrepreneurship and compensation, but scholars have predominantly focused on earnings of individuals directly engaged in the founding process, such as founders, cofounders, and start-up employees. Shifting our focus to incumbent workers, we instead propose that a decline in the cost of entrepreneurship increases the variance in pay among incumbent workers who are not involved in entrepreneurial activities. We posit that, as entrepreneurship becomes a more attractive career option, due to institutional changes, the outside option value of entrepreneurship increases. The resulting increase in mobility threat will disproportionately benefit high earners or those employees who are more difficult to replace: As their bargaining power increases, incumbents will disproportionately reward these workers, especially when they are systematically more inclined to leave for entrepreneurship. We explore these arguments using a difference-in-differences methodology, based on the enactment of an entry reform that reduced the cost of entry in Portugal between 1995 and 2009. We find that an exogenous decrease in the administrative costs of establishing a new venture led to high earners capturing disproportionate rewards relative to low earners. We further show that this relationship was especially pronounced among high earners who (a) exhibited a higher ex ante propensity to transition into entrepreneurship; (b) had fewer credible outside options in paid employment; and (c) operated in industries with decentralized wage bargaining arrangements. By documenting the impact of institutional changes that promote entrepreneurship on incumbent workers’ pay, our study contributes to recent debates about the impact of entrepreneurship on individual earnings. Funding: This work was supported by the CY Initiative, the FCT—Portuguese Foundation of Science and Technology, and the Knowledge, Technology and Organization Research Center at Skema. Supplemental Material: The online appendix is available at https://doi.org/10.1287/orsc.2022.16201 .

Utilizing a panel dataset from OECD countries, this study unveils new evidence suggesting that the centralization of wage bargaining plays a significant role in mitigating Political Budget Cycles. To explain this empirical finding, the paper introduces a political economy model based on a policy game framework, encompassing three key agents: (i) an opportunistic government that decides on the level of budget deficits with the objective of enhancing its reelection prospects, (ii) workers/voters who decide on their sectoral affiliations, and (iii) unions that independently negotiate wages with firms. In this model, the opportunistic government has an incentive to run a budget deficit to favor the median voter, who is affiliated with non-tradable sectors. The mechanism emerges from the impact of debt-financed public spending on relative prices, and consequently, on relative wages between non-tradable and tradable sectors. Wage centralization mitigates the political incentive of opportunistic governments by attenuating the responsiveness of sectoral wages to sectoral prices, thereby pushing down budget deficits towards a socially more optimal level.

As temporary employment has become a pervasive feature of modern labor markets, reasons for wage growth have become less well understood. To determine whether these two phenomena are related, the authors investigate whether the dualized structure of labor markets affects macroeconomic developments. Specifically, they incorporate involuntary temporary workers into the standard wage Phillips curve to examine wage growth in 30 European countries for the period 2004–2017. Relying on individual-level data to adjust for a changing employment composition, their findings show, for the first time, that the incidence of involuntary temporary workers has strong negative effects on permanent workers’ wage growth, thereby dampening aggregate wage growth. This effect, which the authors name the competition effect, is particularly pronounced in countries where wage bargaining institutions are weak. The findings shed further light on the reasons for the secular slowdown of wage growth after the global financial crisis.

This paper aims to construct a synthetic index of workers’ bargaining power and investigate the relationship between it and inflation in the U.S. economy. As a first step, we identify the factors affecting the bargaining power of workers, referring to different groups of variables: labour market indicators; institutional indicators (e.g., collective bargaining coverage, union density); characteristics of the economy (e.g., degree of freedom for capital mobility, share of employment by sector). We then implement Principal Component Analysis (PCA) to assess the adequacy of the indicators and calculate the weights to aggregate the single indicators into a composite index. As a second step, we estimate the impact of our Bargaining Index on inflation by estimating an equation of the determinants of inflation. The composite index thus has a twofold use: it sheds light on the extent to which changes in the labour market in recent decades have weakened workers’ bargaining power, and it can be used to test how the evolution of the wage bargaining system affects inflation.

There was a strong push from employers to decentralize wage setting in Finland in the early 2000s. We analyze the incidence of decentralization and its effect on the level and dispersion of wages by using nationally representative panel data. The results show that wage setting was more likely decentralized in collective agreements where a high share of employees worked in manufacturing or real estate industries than in other industries, such as in education and human health and social work activities. Decentralization was, for the most part, quite short-lived. Using recent difference-in-differences methods that allow for heterogeneous treatment effects and differences in the timing of treatment, we show that decentralization had modest positive effects on the level and dispersion of wages in manufacturing.