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Wage Bargaining, Hard Money and Economic Performance: Theory and Evidence for Organized Market Economies

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  • IVERSEN, TORBEN

Abstract

The political and economic couplings between wage bargaining institutions and macro-economic policy regimes are explored in this article. It is argued that in advanced industrialized democracies with well-organized unions and employers' associations, macro-economic performance (especially unemployment) is the outcome of an interaction between the centralization of the wage bargaining system and the monetary policy regime. Thus, a decentralized bargaining system in which the government in credibly committed to a non-accommodating monetary policy rule poses an institutional alternative to a centralized mode of wage regulation where the government enjoys macro-economic policy flexibility. Based on time-series data from ten highly organized market economies, I show that both of these institutional ‘equilibria’ produce superior employment performance, but also that the two systems are associated with very different distributional outcomes, and that they are supported by different coalitions of organized interests. In addition to predicting economic outcomes, the proposed model provides a theoretical framework for analysing institutional change in wage bargaining systems and in macro-economic policy regimes.

Suggested Citation

  • Iversen, Torben, 1998. "Wage Bargaining, Hard Money and Economic Performance: Theory and Evidence for Organized Market Economies," British Journal of Political Science, Cambridge University Press, vol. 28(1), pages 31-61, January.
  • Handle: RePEc:cup:bjposi:v:28:y:1998:i:01:p:31-61_00
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    Cited by:

    1. Biegert, Thomas, 2017. "Welfare Benefits and Unemployment in Affluent Democracies: The Moderating Role of the Institutional Insider/Outsider Divide," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 82(5), pages 1037-1064.
    2. Holden, Steinar, 2005. "Monetary regimes and the co-ordination of wage setting," European Economic Review, Elsevier, vol. 49(4), pages 833-843, May.
    3. PerOla Öberg & Torsten Svensson, 2010. "Does Power Drive Out Trust? Relations between Labour Market Actors in Sweden," Political Studies, Political Studies Association, vol. 58(1), pages 143-166, February.
    4. Juha Kilponen & David Mayes & Jouko Vilmunen, 1999. "Labour Market Flexibility in Northern Europe," One Europe or Several? Working Papers 2, One-Europe Programme.
    5. Kayam, Saime S., 2011. "Influence of institutional factors and wage-setting mechanism in a dual labour market with currency union: Northern Cyprus," MPRA Paper 39154, University Library of Munich, Germany.
    6. Christoph S. Weber, 2020. "The unemployment effect of central bank transparency," Empirical Economics, Springer, vol. 59(6), pages 2947-2975, December.
    7. Calmfors, Lars, 2001. "Wages and wage-bargaining institutions in the EMU – a survey of the issues," Seminar Papers 690, Stockholm University, Institute for International Economic Studies.
    8. repec:eid:wpaper:01/10 is not listed on IDEAS
    9. Horst Feldmann, 2010. "Venture Capital Availability and Labor Market Performance in Industrial Countries: Evidence Based on Survey Data," Kyklos, Wiley Blackwell, vol. 63(1), pages 23-54, February.
    10. Sebastian Weber, 2006. "Labor Market Structures, Trade and their Effect on Unemployment: A Theoretical Analysis and Empirical Investigation," IHEID Working Papers 22-2006, Economics Section, The Graduate Institute of International Studies.
    11. Biegert, Thomas, 2017. "Welfare benefits and unemployment in affluent democracies: the moderating role of the institutional insider/outsider divide," LSE Research Online Documents on Economics 85913, London School of Economics and Political Science, LSE Library.
    12. Lars Calmfors, 2001. "Wages and Wage-Bargaining Institutions in the Emu : A Survey of the Issues," CESifo Working Paper Series 520, CESifo.

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