Institutions,capital stock and wage setting in Spain

This article confronts two distinct perspectives of the labour market: the institutionalist view?–?highlighting equilibrium and labour market institutions?–?and the Chain Reaction Theory?–?emphasizing dynamics and the growth drivers’ role in labour market performance. We consider the ratio of public to private capital stock as a growth driver relevant to the labour market; provide different economic rationales for this ratio to exert a negative influence in wage setting; and explore its empirical relevance in the context of a wage setting curve for Spain comprising the standard variables. There are two main results. First, several institutional variables taken to be critical to explain unemployment in the mainstream literature are not relevant for the Spanish wage setting curve. Second, there is a negative and significant influence of the ratio of public to private capital stock, which is robust to different specifications of the wage setting equation.     

Monetary regimes and the co-ordination of wage setting

A recent literature argues that a strict monetary regime may reduce equilibrium unemployment by disciplining wage setters, as wage setters abstain from raising wages to avoid a monetary contraction. However, in this literature the wage setters are assumed not to co-ordinate their wage setting. The present paper argues that precisely because a strict monetary regime may discipline the unco-ordinated wage setting, thus lowering unemployment in the unco-ordinated outcome, it also reduces wage setters’ incentives to co-ordinate. It is shown that an accommodating monetary regime may reduce equilibrium unemployment, via the strengthening of the wage setters’ incentives to co-ordinate.     

Strategic wage setting, inflation uncertainty and optimal delegation

The paper examines optimal monetary policy delegation in an economy where wages are set strategically by a single economy-wide union whose objectives relate to employment and the real wage. Crucially, the central bank exerts imprecise control over inflation, giving rise to a positive relationship between the mean value of inflation and its variance. In this context, union concerns with regard to the employment goal render equilibrium sensitive to the conduct of monetary policy. As a consequence, optimal delegation arrangements closely resemble those identified as optimal in models that assume a direct aversion to inflation on the part of unions.     

Labour market institutions and wage setting: evidence for OECD countries

The main channel through which labour market institutions are supposed to work in affecting unemployment is through their effects on the key parameters of the wage curve. In particular, labour market institutions may have both a direct wage push (or level) effect, i.e. change the level of the real wage for any given level of the unemployment rate and productivity, and an indirect slope effect, i.e. change the responsiveness of the real wage to the unemployment rate. The question this article addresses is whether there is any evidence that these transmission mechanisms were at work in a group of 20 Organization for Economic Co-operation and Development (OECD) countries over the period 1960 to 1999. The analysis is accomplished in two steps. Pooled Mean Group (PMG) estimates of a wage equation including unemployment, productivity and a set of wage push institutions are first obtained, allowing only a subset of institutional coefficient to be homogeneous, while leaving the unemployment and other coefficients free to differ across countries. The country specific estimates of the unemployment coefficients are then used to investigate whether and to what extent cross-country heterogeneity in the estimated wage response to unemployment is related to institutional differences. The results support the existence of significant wage push effects of union density and benefit replacement rates, and of significant slope effects of benefit replacement rates, benefit duration and employment protection. A more generous unemployment benefit structure is found to lower the wage responsiveness to unemployment, while higher employment protection, contrary to what one expects, is found to enhance it. No significant level and slope effects are found for the tax wedge and bargaining coordination.     

Wage settlements and wage setting: results from a multi-level model

Which dimensions of wage setting differ across establishments applying collective contracts and uncovered establishments? The empirical analysis reported here utilizes German linked employer–employee data for the years 1990, 1995 and 2001 and is restricted to workers without supervisory functions in larger manufacturing firms. Results show that the expected wage of an average worker is higher in firms applying collective contracts, while returns to human capital and the gender wage gap are reduced. Moreover, during the 1990s these effects became stronger.     

Local flexibility in wage setting: evidence from the Norwegian local public sector

The public sectors in the Scandinavian countries have been prominent examples of centralized wage-setting systems. In Norway, more room for local flexibility was implemented by a wage frame system introduced in 1990 in which the national wage scale system merely works like a minimum wage system. We analyze the effect of this reform using a unique database where we can track employees and their local government over time and explore the consequences of controlling for fixed individual effects and fixed employer effects. We find that the wage dispersion increased across local governments after 1990, and that wages to some extent became more responsive to local government income, monopsony power and other local government characteristics after the reform. However, the numerical effects of the reform are estimated to be quite small.     

How does reciprocal behaviour of workers influence the wage setting of unions?

Traditional wage setting models assume that unions maximise the total income of workers, whereas actually they should maximise worker utility. These models implicitly equate utility with income, but this is not valid if workers’ utility depends on their sense of fairness and includes a non-pecuniary benefit from work. This paper presents a model combining efficiency wages with bargaining theory, drawing inspiration from the gift-exchange approach by Akerlof [Q J Econ 97(4):543–569, 1982]. It shows that the mutual gift exchange between firms and workers generates a non-pecuniary benefit which contributes to the workers’ utility in a non-monotonic way depending on the strength of workers’ sense of fairness. The model shows that if an employment subsidy is paid to workers it generates more jobs than when paid to firms. This paper is based on research which was performed while the author was employed at the University of Maastricht (The Netherlands). The author wishes to thank Thomas Ziesemer, Erik de Regt, Sabine Fuss and Kristin Vetter for many helpful comments and assumes full responsibility for any remaining flaws.     

Keynesian unemployment as a nash equilibrium with endogenous wage/price setting: An example

A simple 3 good, 1 consumer, 1 firm model of fixed price, quantity constrained equilibrium is developed. A game is then defined on the set of (globally unique) equilibria. The consumer sets the money wage, the firm sets the money price of output (money is numeraire). Nash solutions of the game exist and may involve Keynesian unemployment but never involve Classical unemployment or Repressed inflation.     

从经济理性到有限理性:经济学研究理性假设的演变

"经济理性"是经济学的传统研究假设,却因背离现实而受到质疑.基于行为人稀缺的心理资源和系统固有的不确定性而产生的"有限理性"正逐步取代"经济理性"成为经济学研究的理性假设.不同的理性观点可以从决策的视角得到系统地解释和比较.并且,随着理性假设的演变,经济行为的决策标准也相应从单一静态最优向多元动态平衡转变.     

Canadian wage controls in an eclectic model of wage determination

Using a model of wage determination that allows for wage inertia, price expectational and price catch-up influences and quarterly data on annual wage change in new major Canadian settlements for 1967–1987, this paper shows that the Anti-Inflation Board (AIB) wage control programme has a much larger wage restraining influence than is estimated in previous studies. In contrast, the Six and Five wage control programme exerts only a modest restraining influence. Both results are of special interest because the wage determination model used here allows for not only the direct effect of wage controls, but also the indirect wage restraining effect of controls operating through lagged wage changes. We would like to thank two anonymous referees and the editor of this Journal for helpful comments on the work reported in this paper. We also want to acknowledge with thanks the very able research assistance provided by James Chu, Ann Holmes, and Graham Voss and the financial assistance provided by Career Access and Challenge grants from Employment and Immigration Canada and University of Victoria Faculty Research Grants.     

Normative ecological rationality: normative rationality in the fast-and-frugal-heuristics research program

The purpose of this paper is to examine the normative interpretation of the fast-and-frugal research program and in particular to contrast it with the normative reading of rational choice theory and behavioral economics. The ecological rationality of fast-and-frugal heuristics is admittedly a form of normative naturalism (Gigerenzer and Sturm 2012) – it derives what agents “ought” to do from that which “is” ecologically rational – and the paper will examine how this differs from the normative rationality associated with rational choice theory. I will also attempt to assess the relative adequacy of normative ecological rationality.     

UK wage underpayment: implications for the minimum wage

Dynamic monopsony suggests that, due to labour market frictions, workers will be paid below their productivity. This paper uses the stochastic frontier technique to estimate the degree of this underpayment for UK employees. It finds evidence of significant underpayment. The estimates are used to examine whether the predictions of dynamic monopsony are empirically accurate. No conclusive evidence against this theoretical framework is found. The paper also investigates whether payment according to productivity is a sufficient condition for the elimination of the ‘working poor’ problem. Due to the existence of an unemployment barrier, it finds that the minimum wage is not an effective anti-poverty policy.     

Compensating wage differences

The paper develops a model of the allocation of workers to jobs based on individual's preferences for job satisfaction vs earnings. Given the distribution of levels of job satisfaction and productivities, it is possible to solve explicitly for wages as a function of job satisfaction. More productive individuals will take more (less) satisfying jobs whenever the elasticity of substitution between job satisfaction and earnings is less (greater) than one. The paper also discusses the effects of inequality on earnings of high and low productivity workers and the effects of compensating wage differences on the distribution of earnings.     

World wage distribution

Two mechanisms are specified by which Hicks neutral efficiency differences between countries generate magnified international wage gaps. The theory is consistent with empirical observations on the price of non-internationally traded goods.     

Bubbles and rationality in bitcoin

Periodically collapsing rational bubbles model speculative demand in asset markets. The price and quantity of bitcoin are integrated of different orders, which is evidence of a bubble. Cointegration tests that allow for the potential presence of such bubbles with alternative proxies for fundamentals cannot reject a bubble in bitcoin.