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Efficiency of Collective Bargaining in the Public Sector: a Natural Experiment

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  • Katrin Olafsdottir

Abstract

In this paper I develop a two-stage bargaining model determining wages and employment and apply it to the public sector. Solving the model leads to structural wage and employment equations that I estimate using data from the public sector in Iceland. Nested in the model are the major collective bargaining models (right-to-manage and efficient contracting). The model can be empirically tested to distinguish between the bargaining models. Significant changes were made to collective bargaining contracts in the public sector in Iceland at the same time the bargaining process was decentralized, which provides for a natural experiment. The model is estimated for the period before the changes were made and again after the changes had taken root. The result is that the bargaining power of unions has changed between the two periods and the bargaining structure has become more inefficient with the changes in the collective bargaining contracts.

Suggested Citation

  • Katrin Olafsdottir, 2013. "Efficiency of Collective Bargaining in the Public Sector: a Natural Experiment," Quaderni del Dipartimento di Economia, Finanza e Statistica 119/2013, Università di Perugia, Dipartimento Economia.
    • Handle: RePEc:pia:wpaper:119/2013
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    References listed on IDEAS

    as
    1. Currie, Janet, 1991. "Employment Determination in a Unionized Public-Sector Labor Market: The Case of Ontario's School Teachers," Journal of Labor Economics, University of Chicago Press, vol. 9(1), pages 45-66, January.
    2. Freeman, Richard B, 1986. "Unionism Comes to the Public Sector," Journal of Economic Literature, American Economic Association, vol. 24(1), pages 41-86, March.
    3. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
    4. Torberg Falch & Bjarne Strøm, 2006. "Local flexibility in wage setting: evidence from the Norwegian local public sector," Empirical Economics, Springer, vol. 31(1), pages 113-142, March.
    5. Manning, Alan, 1987. "An Integration of Trade Union Models in a Sequential Bargaining Framework," Economic Journal, Royal Economic Society, vol. 97(385), pages 121-139, March.
    6. Eberts, Randall W & Stone, Joe A, 1986. "On the Contract Curve: A Test of Alternative Models of Collective Bargaining," Journal of Labor Economics, University of Chicago Press, vol. 4(1), pages 66-81, January.
    7. Knut Rexed & Chris Moll & Nick Manning & Jennifer Allain, 2007. "Governance of Decentralised Pay Setting in Selected OECD Countries," OECD Working Papers on Public Governance 3, OECD Publishing.
    8. Falch, Torberg, 2001. "Collective bargaining in the public sector and the role of budget determination," European Journal of Political Economy, Elsevier, vol. 17(1), pages 75-99, March.
    9. John A. Abowd & Thomas Lemieux, 1993. "The Effects of Product Market Competition on Collective Bargaining Agreements: The Case of Foreign Competition in Canada," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(4), pages 983-1014.
    10. Robert F. Elliott & Keith A. Bender, 1997. "Decentralization and Pay Reform in Central Government: a Study of Three Countries," British Journal of Industrial Relations, London School of Economics, vol. 35(3), pages 447-475, September.
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    More about this item

    Keywords

    wage structure; collective bargaining; decentralization; public sector; trade union models;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J45 - Labor and Demographic Economics - - Particular Labor Markets - - - Public Sector Labor Markets
    • J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation

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