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Facts and Fantasies about Wage Setting and Collective Bargaining

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  • Manudeep Bhuller
  • Karl Ove Moene
  • Magne Mogstad
  • Ola L. Vestad

Abstract

In this article, we document and discuss salient features of collective bargaining systems in the OECD countries, with the goal of debunking some misconceptions and myths and revitalizing the general interest in wage setting and collective bargaining. We hope that such an interest may help close the gap between how economists tend to model wage setting and how wages are actually set. Canonical models of competitive labor markets, monopsony, and search and matching all assume a decentralized wage setting where individual firms and workers determine wages. In most advanced economies, however, it is common that firms or employer associations bargain with unions over wages, producing collective bargaining systems. We show that the characteristics of these systems vary in important ways across advanced economies, with regards to both the scope and the structure of collective bargaining.

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  • Manudeep Bhuller & Karl Ove Moene & Magne Mogstad & Ola L. Vestad, 2022. "Facts and Fantasies about Wage Setting and Collective Bargaining," Journal of Economic Perspectives, American Economic Association, vol. 36(4), pages 29-52, Fall.
    • Handle: RePEc:aea:jecper:v:36:y:2022:i:4:p:29-52
    DOI: 10.1257/jep.36.4.29
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    2. Silliman, Mikko & Willén, Alexander, 2024. "Worker Power, Immigrant Sorting, and Firm Dynamics," Discussion Paper Series in Economics 13/2024, Norwegian School of Economics, Department of Economics.
    3. Bernardo Fanfani & Claudio Lucifora & Daria Vigani, 2024. "Employer associations in Italy: Trends and economic outcomes," British Journal of Industrial Relations, London School of Economics, vol. 62(2), pages 206-232, June.
    4. Doorley, Karina & Gromadzki, Jan & Lewandowski, Piotr & Tuda, Dora & Van Kerm, Philippe, 2023. "Automation and Income Inequality in Europe," IZA Discussion Papers 16499, Institute of Labor Economics (IZA).
    5. Joshua Budlender & Ihsaan Bassier, 2023. "Rent sharing, wage floors, and development," WIDER Working Paper Series wp-2023-132, World Institute for Development Economic Research (UNU-WIDER).
    6. Samuel Dodini & Kjell G. Salvanes & Alexander Willén & Li Zhu & Alexander L.P. Willén, 2023. "The Career Effects of Union Membership," CESifo Working Paper Series 10469, CESifo.
    7. Peter Skott, 2024. "Conflict inflation: Keynesian path dependency or Marxian cumulation?," Working Papers PKWP2406, Post Keynesian Economics Society (PKES).
    8. Dodini, Samuel & Stansbury, Anna & Willén, Alexander, 2023. "How Do Firms Respond to Unions?," Discussion Paper Series in Economics 25/2023, Norwegian School of Economics, Department of Economics.
    9. Patrick Bennett & Kjell Salvanes, 2024. "Changing patterns of inequality in Norway: the roles of gender, education, immigration and unions," Fiscal Studies, John Wiley & Sons, vol. 45(2), pages 205-224, June.
    10. Leibrecht, Markus & Scharler, Johann & Zhoufu, Yan, 2023. "Automation and unemployment: Does collective bargaining moderate their association?," Structural Change and Economic Dynamics, Elsevier, vol. 67(C), pages 264-276.
    11. Bustos, Emil, 2024. "Collectively Bargained Wages and Female Earnings: Evidence from Swedish Local Governments," Working Paper Series 1494, Research Institute of Industrial Economics.
    12. Wildauer, Rafael & Kohler, Karsten & Aboobaker, Adam & Guschanski, Alexander, 2023. "Energy price shocks, conflict inflation, and income distribution in a three-sector model," Energy Economics, Elsevier, vol. 127(PB).
    13. Bassier, Ihsaan, 2022. "Collective bargaining and spillovers in local labor markets," LSE Research Online Documents on Economics 118057, London School of Economics and Political Science, LSE Library.
    14. Bustos, Emil, 2023. "The Effect of Centrally Bargained Wages on Firm Growth," Working Paper Series 1456, Research Institute of Industrial Economics.
    15. Gianluca Antonecchia & Ajay Bhaskarabhatla & Enrico Pennings, 2024. "Bargaining Power and Quantity Discounts to Retailers: Evidence from India’s Pharmaceutical Industry," Tinbergen Institute Discussion Papers 24-048/VII, Tinbergen Institute.
    16. Fanfani, Bernardo, 2023. "The employment effects of collective wage bargaining," Journal of Public Economics, Elsevier, vol. 227(C).
    17. Ihsaan Bassier, 2022. "Collective bargaining and spillovers in local labor markets," CEP Discussion Papers dp1895, Centre for Economic Performance, LSE.
    18. Munch, Jakob R. & Olney, William W., 2024. "Offshoring and the Decline of Unions," IZA Discussion Papers 17116, Institute of Labor Economics (IZA).

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    More about this item

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
    • J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation
    • J53 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Labor-Management Relations; Industrial Jurisprudence

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