Seminar Papers, Institute for International Economic Studies, Stockholm University
Pattern Bargaining and Wage Leadership in a Small Open Economy
() and Anna Larsson
Abstract: Pattern bargaining where the tradables (manufacturing)
sector acts as wage leader is a common form of wage bargaining in Europe.
Our results question the conventional wisdom that such a bargaining set-up
produces wage restraint. We find that all forms of pattern bargaining give
the same macroeconomic outcomes as uncoordinated bargaining under inflation
targeting and a flexible exchange rate. Under monetary union (a fixed
exchange rate) wage leadership for the non-tradables sector is conducive to
wage restraint and high employment, whereas wage leadership for the
tradables sector is not. Loss aversion and comparison thinking in wage
setting, where unions evaluate the utility of the wages of their members
relative to a wage norm, may lead the follower to set the same wage as the
leader. Such equilibria can arise when the leader sector is the smaller
sector and promote high employment.
Keywords: pattern bargaining; wage setting; inflation targeting; monetary regimes; (follow links to similar papers)
JEL-Codes: E24; J50; (follow links to similar papers)
44 pages, August 7, 2009
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