Bargaining structure and nominal wage flexibility

In a model with wage setting by monopoly unions and monetary policy conducted by a central bank, the duration of nominal wage contracts is shown to be u-shaped in the degree of centralization, with intermediate bargaining systems yielding contracts of shorter duration and thus, more flexible nominal wages than both decentralized and centralized systems. The theoretical predictions of the model are tested on OECD data, and there is empirical support for the main results on contract length.