Wage-setting Institutions Research Articles

The relationship between labor market institutions and innovation in 177 European regions over the period 2000–2015

The main goal of this paper is to investigate the relationship between labor market institutions (LMIs) and patents in 177 NUTS-1 and NUTS-2 European regions. Fixed effects models, ordinary least squares (OLS), the generalized method of moments estimation of the fixed effects (FE-GMM), multilevel modeling (MLM), and spatial models are employed. Patents are negatively correlated with EPL and union density and positively associated with wage bargaining coverage and centralization. As a result, a uniform wage that is higher than the competitive wage can enable the Schumpeterian creative destruction process, forcing firms to invest in innovation to remain in the market. Spatial analysis emphasizes that regional proximity promotes the flow of knowledge and increases the chance of innovation. Interactions also matter. Increased bargaining power and coordination, in particular, may outweigh the negative consequences of isolated EPL reforms. Thus, policies that strengthen wage-setting institutions are required in Europe to boost innovation.

The Impact of Wage-Setting Institutions on the Creation and Long-Term Survival of Small, Medium and Microenterprises (SMMES) in South Africa

The Impact of Wage-Setting Institutions on the Creation and Long-Term Survival of Small, Medium and Microenterprises (SMMES) in South Africa

How do wage setting institutions affect wage rigidity? Evidence from French micro data

We document new empirical findings on the effects of wage setting institutions on wage rigidity using quarterly micro wage data matched with sectoral minimum wages. We first estimate a micro empirical model of wage rigidity that takes into account minimum wage dynamics. We then use a simulation method to investigate the implications of lumpy micro wage adjustment for aggregate wages. Both national and sectoral minimum wages have a large effect on the timing and on the size of wage adjustments. Minimum wage setting institutions contribute to increasing the time it takes to fully absorb a shock to wages by one year, although the resulting wage changes are significantly higher. Minimum wages contribute to amplifying, by a factor of 1.7, the response of wages to past inflation. The elasticities of wages with respect to past inflation, the national minimum wage and sectoral minimum wages are 0.42, 0.17 and 0.16 respectively. Finally, there are significant spillover effects of the national minimum wage on higher wages passing through from sectoral minimum wages.

The effect of labor market institutions and macroeconomic variables on aggregate unemployment in 1990–2019: Evidence from 22 European countries

AbstractThis paper investigates the long-run effect of a wide set of labor market institutions (LMIs) and macroeconomic variables on aggregate unemployment for a panel of 22 European countries over the period 1990–2019. First-difference feasible generalized least squares model, Prais-Winsten regression with panel-corrected standard errors, two-step generalized method of moments estimation of the fixed effects, and fixed-effects regression with Driscoll and Kraay standard errors are estimated. The results suggest that employment protection legislation, wage bargaining coordination and centralization, minimum wage, and immigration inflows are significantly and negatively associated with the aggregate unemployment rate. Conversely, union density, product market regulation (PMR), and tax wedge have a positive and significant correlation with unemployment rate. The impact of corporate tax rate and government size is mostly positive. Moreover, the interaction between LMIs does matter and may sometimes change the interpretation of some reforms taken in isolation. Stronger wage-setting institutions may offset the negative impact of PMR and the tax wedge. Macroeconomic variables are generally consistent with the major literature and do not change LMIs interpretation. Among macroeconomic factors, capital accumulation plays the most important role in reducing the unemployment rate. Finally, my findings suggest the implementation of economic policies consistent with Keynesian theory and all those economists—such as Solow (1990)—who look at the labor market as a social institution.

The health effects of wage setting institutions: How collective bargaining improves health but not because it reduces inequality.

Do wage-setting institutions, such as collective bargaining, improve health and, if so, is this because they reduce income inequality? Wage-setting institutions are often assumed to improve health because they increase earnings and reduce inequality and yet, while individual-level studies suggest higher earnings improve well being, the direct effects of these institutions on mortality remains unclear. This paper explores both the relationship between wage-setting institutions and mortality rates whether income inequality mediates this relationship. Using 50years of data from 22 high-income countries (n~825), I find mortality rates are lower in countries with collective bargaining compared to places with little or no wage protection. While wage-setting institutions may reduce economic inequality, these institutions do not appear to improve health because they reduce inequality. Instead, collective bargaining improves health, in part, because they increase average wage growth. The political and economic drivers of inequality may not, then, be correlated with health outcomes, and, as a result, health scholars need to develop more nuanced theories of the political economy of health that are separate from but in dialogue with the political economy of inequality.

Cross‐Country Evidence on Labor Market Institutions and Young Adult Employment through the Financial Crisis

I develop and analyze a set of cross‐country facts regarding employment and wage setting institutions over the decade surrounding the 2008 financial crisis. Among long‐industrialized countries, young adult employment declined more than prime age employment over this time period. I show that differences in countries' wage setting institutions strongly predict variations in the magnitude of declines in young adult employment. Both unconditionally and conditional on changes in macroeconomic conditions, young adult employment declined 5 percentage points less in countries where wage setting is driven by collective bargaining arrangements than in countries with statutory wage floors. Evidence on the evolution of legislated minimum wage rates and of an asymmetry in the relationship between growth and young adult employment suggest an important role for a standard “wage rigidity” mechanism.

The Paradox between the European Pillar of Social Rights and EU Economic Governance: Spanish Reforms to Wage-Setting Institutions and the Working Poor

The European Pillar of Social Rights (EPSR) was announced as a new platform for advancing social policy in the European Union. Among the principles and rights enshrined in the EPSR, the Commission has included the right of workers to be paid fair wages. However, in the context of EU Economic Governance, the EU country-specific recommendations steer national wage-setting institutions in the opposite direction. The outcomes sought by EU Economic Governance and the EPSR thus produce a paradox. This paper presents the Spanish case as an example of this paradox. More specifically, it assesses the reforms the Spanish Government made to minimum wage rules and the collective bargaining system during the financial crisis. In the end, all those reforms have led to wage stagnation and devaluation, causing an increasing number of working poor. El Pilar Europeo de Derechos Sociales (EPSR) fue presentado como una nueva etapa en la dimensión social de la Unión Europea. Entre los principios y derechos consagrados en la EPSR, la Comisión incluyó el derecho de los trabajadores a un salario justo. Sin embargo, en el contexto de la gobernanza económica de la UE, las Recomendaciones a los países de la UE llevan a las instituciones nacionales de fijación de salarios en la dirección contraria. Por lo tanto, los resultados buscados por la nueva gobernanza de la Unión Europea y el EPSR producen una paradoja. Este artículo toma el caso español como ejemplo de dicha paradoja. Más concretamente, evalúa las reformas adoptadas por el Gobierno español durante la crisis con respecto al salario mínimo y al sistema de negociación colectiva, las cuales han llevado a una moderación o una devaluación de los salarios, favoreciendo el aumento de la pobreza laboral.

Immigrants and Poverty. The Role of Labour Market and Welfare State AccessEugster, BeatriceLondon/New York, ECPR Press/Rowman&Littlefield (2018), 259 p., ISBN 978‐1785522932

Book Review: Are immigrants poorer than natives? Which categories of immigrants are poorer? Do immigrants’ poverty patterns follow the traditional welfare state regime typology? Can institutions–particularly social rights in terms of access to welfare provision and the labour market–explain the variation in immigrants’ poverty levels? These are the fundamental questions that Beatrice Eugster analyses in her new book.

The Restructuring of Wage-Setting Fields between Transnational Competition and Coordination

This article addresses the restructuring of wage-setting institutions in social services in Austria and Germany and seeks to better understand the forces shaping their changes and continuities. Social services include a wide range of services such as labour market policies or elderly care provided by state, private for- and non-profit organisations. Despite similar pressures resulting from European and national politics of economic liberalisation and austerity and the emergence of transnational corporations and labour migration wage-setting in social services turned out to follow different institutional paths. This article expands conventional theorising by using a social field perspective to uncover the role of (institutionalised) power relations and conflict dynamics in shaping the wage-setting institutions. While existing institutions and particular power relations between regional and national actors helped create a common wage-setting field in Austrian social services, the interactions between national and regional, and, to a lesser extent, transnational field participants have led to fragmented and still contested institutions of wage setting in German social services.

Immigrants and poverty, and conditionality of immigrants’ social rights

It is not only immigration and the incorporation of immigrants into society that serve as challenges for post-industrialised countries, but also rising inequality and poverty. This article focuses on both issues and proposes a new theoretical perspective on the determinants of immigrant poverty. Building on comparative welfare state research and international migration literature, I argue that immigrants’ social rights – here understood as their access to paid employment and welfare benefits – condition the impact which both the labour market and welfare system have on immigrants’ poverty. The empirical analysis is based on a newly collected dataset on immigrants’ social rights in 19 advanced industrialised countries. The findings confirm the hypotheses: more regulated minimum wage setting institutions and generous traditional family programmes reduce immigrants’ poverty more strongly in countries where they are granted easier access to paid employment and social benefits.

Wage Flexibility and Employment Fluctuations: Evidence from the Housing Sector

Many economists suspect that downward nominal wage rigidities in ongoing labour contracts are an important source of employment fluctuations over the business cycle, but there is little direct empirical evidence on this conjecture. This paper compares three occupations in the housing sector with very different wage setting institutions: real estate agents, architects and construction workers. I study the wage and employment responses of these occupations to the housing cycle, a proxy for labour demand shocks to the industry. The employment of real estate agents, whose pay is far more flexible than the other occupations, indeed reacts less to the cycle than employment in the other occupations, although specific estimates are noisy. I show that the aggregate implications of the estimates depend also on the aggregate labour demand elasticity, which captures how easily laid off workers can find employment in alternative sectors.

Market and political power interactions in Greece: an empirical investigation

In this paper, using a dynamic panel of 21 OECD countries, we find that, unlike the other OECD countries in the sample, wage setting institutions, competition conditions, public finances, and external imbalances can account for the behavior of the public sector wage premium (WPR) and the self-employed taxation gap (TSL) in Greece and to a lesser extent in Spain and Portugal, in a manner that is consistent with an “insider–outsider society” (IOS). That is, a politicoeconomic system characterized by groups of selfish elites that enjoy market power but at the same time cooperate in influencing government in protecting and promoting their collective self-interests. Then, we find that for Greece as well as Spain and Portugal, WPR and TSL have an adverse effect on both TFP and output growth. Finally, the effect of WPR and TSL on the business cycle (shock propagation mechanism) is investigated via a panel VAR analysis. Again, impulse response function analysis suggests that the shock propagation mechanisms of WPR and TSL for Greece and to a lesser extent for Spain and Portugal are quite different from the rest of the OECD countries. For example, in Greece, unlike the other OECD countries in the sample, a positive temporary shock in WPR causes TFP and output to fall and the public and current account deficits to increase. We take the TFP/output growth and the shock propagation mechanism results to provide strong evidence that Greece and to a lesser extent Spain and Portugal behave like IOS. For that matter, these results are important in order to understand the Greek crisis.

Whither the Middle Class? Financialization, Labor Institutions, and the Gap between Top- and Middle-Income Earners in Advanced Industrial Societies

Recent research shows that financial activities expand the wage gap between affluent and middle-class workers in advanced industrial societies. Furthermore, a well-established literature indicates that differences in labor institutions may be responsible for cross-national variations of income inequality in developed countries. Surprisingly, there is no empirical research examining whether the positive association between financialization and income inequality is conditioned by differences in wage coordination. We contribute to this comparative income inequality literature by testing the claim that wage-setting institutions suppress the inequality-widening effects of finance in advanced industrial societies. To test this contention, we compile an unbalanced panel dataset of 20 developed economies during the years 1988 to 2009. According to our results, financial activities are a robust positive predictor of 90–50 inequality. More importantly, the interaction of financialization and wage coordination returns significant negative associations with the dependent variable. These results are found to be consistent across different estimation techniques and numerous regression parameters.

Part-time employment, the gender wage gap and the role of wage-setting institutions: Evidence from 11 European countries

We examine how far the over-representation of women in part-time jobs can explain the gender gap in hourly earnings, and also investigate how far wage-setting institutions are correlated with the overall gender wage gap and the female part-time wage gap. Using European Union Statistics on Income and Living Conditions (EU-SILC) 2009 data for 11 European countries, we implement a double decomposition of the gender wage gap: between men and women employed full-time and between full-time and part-time working women. This shows that the wage penalty of women employed part-time occurs mainly through the segregation of part-time jobs, but the full-time gender pay gap remains mostly unexplained. At the macro level, the gender wage gap tends to be higher in countries where part-time employment is more widespread. Some wage-setting institutions seem to reduce the female full-time/part-time pay gap and the gender gap among full-time workers.

How wage setting institutions redistribute incomes and improve health

How wage setting institutions redistribute incomes and improve health

One-size-fits-some! Capitalist diversity, sectoral interests and monetary policy in the euro area

ABSTRACTIn the comparative capitalism literature, the European Central Bank's (ECB's) ‘one-size-fits-none’ monetary policy played a key role in the widening of trade imbalances in the euro area (EA) by being overly restrictive for the region's coordinated market economies (CMEs) and overly expansionary for the region's mixed market economies (MMEs). According to this literature, wage setting institutions mediated how the ECB's monetary policy re-distributed resources between the traded and non-traded sectors in these varieties of capitalism. By examining three separate transmission channels of the ECB's monetary policies (wage and price setting in labor and product markets; nominal exchange rate of the euro; funding costs and bank credit), this paper goes beyond the traditional emphasis on wage setting institutions and draws attention to those institutions that underpin the non-price competitiveness of traded sectors. Overall, the paper explains how the institutional infrastructure of the CMEs bolstered the adaptability of their traded sectors to the ECB's single monetary policy and its three transmission mechanisms – both during the pre-crisis era of widening imbalances and the period of asymmetrical trade rebalancing since the outbreak of the euro crisis.

Institutions and collective action in divided labour movements: Evidence from Indonesia

Under what conditions do trade unions in divided labour movements cooperate? Does cooperation in one domain increase the likelihood of cooperation in the other? Do institutions facilitate or discourage cooperation? We explore these questions through an examination of collective action across federation and confederation lines in post-Suharto Indonesia. Using a comparison of union cooperation in the policy and electoral domains, we demonstrate that tripartite wage-setting institutions have played a central role in facilitating collective action in the policy domain, encouraging unions to look beyond shop-level issues to policy issues identified by their respective national organizations as affecting workers. The relative absence of collective action across organizational divides in the electoral domain, meanwhile, can be explained by the institutional context, which creates higher barriers to unions working together.

How Could Wage Inequality within and Across Enterprises Be Reduced?

This note surveys the recent literature on wage inequality between and across enterprises. Implications for policies such as the minimum wage, collective bargaining, and other wage setting institutions are discussed.

Is the ladder sticky? Measuring semi-parametrically state dependence in earnings mobility

ABSTRACTEmploying the U.S. data for the 1990’s, we disentangle state dependence from unobserved heterogeneity in earnings mobility. The fixed effects dynamic multinomial logit utilized to model earnings quintiles dynamics fits the data very well, much more so than the autocorrelated dynamic ordered probit. Unordered models should thus be preferred to study earnings mobility. State dependence is found to be significant. It has a protective (anti-fall) effect at the top of the distribution and a detrimental (anti-rise) effect at the bottom. Consequently, the difficulty of climbing the ladder is not exclusively a question of individual characteristics. Public policies could thus be implemented to improve information about individuals’ ability and job offers, and to design more efficient wage-setting institutions.

Institutional wage-setting, labour demand and labour supply: Causal estimates from a South African pseudo-panel

ABSTRACTUnemployment in South Africa has multiple causes. This article uses a district pseudo-panel to estimate the elasticity of labour demand, labour supply and unemployment with respect to wages. We assess whether hiring decisions are more sensitive to increases in wages of low-paid workers than high-paid workers, and whether wage growth prompts entry into the labour market. These channels combine to result in the positive causal effect of wage growth on unemployment. The research investigates whether these effects are dominated by districts in which unionisation rates are high and employment is concentrated in large firms. Wage growth of middle-paid to highly paid workers – as opposed to low-paid workers – reduces local labour demand and raises local unemployment. Bargaining arrangements correspond closely to the spatial wage distribution; in turn, a large part of the impact that wage growth has on labour market outcomes is determined by these wage-setting institutions.