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The Role of Labor Market Institutions on Wage and Inflation Dynamics: Empirical Evidence from OECD Economies

Author

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  • Fatih Macit

    (Department of Economics, Beykent University, Istanbul, TURKEY 34396)

Abstract

This paper investigates empirically how labor market institutions affect wage and inflation dynamics, particularly the volatility of real wage growth and inflation using a panel data for OECD economies. I also look at how the rate of unemployment is affected by the larger set of labor market variables that captures diverse aspects of the labor market. The main finding of the paper is that benefit replacement rate is the most significant variable in explaining the volatility of real wage growth and inflation. Besides that union density and bargaining coordination also play an important role in explaining the volatilities in these variables. These results for the benefit replacement rate and union density also support the findings of the theoretical models. It is also shown that the labor market institutions have a considerable influence on the level of unemployment as higher levels of benefit replacement rate, longer durations of unemployment benefits, and a higher union density are expected to lead to a higher level of unemployment.

Suggested Citation

  • Fatih Macit, 2010. "The Role of Labor Market Institutions on Wage and Inflation Dynamics: Empirical Evidence from OECD Economies," Economic Analysis and Policy, Elsevier, vol. 40(1), pages 64-77, March.
    • Handle: RePEc:eee:ecanpo:v40:y:2010:i:1:p:64-77
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    Citations

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    Cited by:

    1. Thibault Darcillon, 2016. "Do Interactions between Finance and Labour Market Institutions Affect the Income Distribution?," LABOUR, CEIS, vol. 30(3), pages 235-257, September.

    More about this item

    Keywords

    Inflation dynamics; wage dynamics; labor market institutions;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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