The interaction of monetary policy and wages

This paper focuses on the interaction of monetary policy and wage formation in economies with strong labor unions. Government and unions are viewed as endogenous utility maximizers and the macroeconomic consequences of their strategic interaction are explored with the aid of some elements of simple game theory. Specifically, it is shown (a) how labor unions adjust wages to prices so as to maximize their utility following changes in monetary policy; (b) how the effectiveness of monetary policy is circumscribed without necessarily being nullified by the utility-maximizing reactions of unions; and (c) how the interplay of government and unions can create a persistent tendency towards inflation and unemployment simultaneously.     

Neocorporatism and the 'happiness index', or what the trade unions get for their cooperation

Abstract. In concluding a recent analysis of the conditions for trade union wage restraint, Colin Crouch asks 'what neocorporatist unions gain for their members in exchange for restraint?'. An attempt to answer this question is made, first by examining a range of policy outcomes which may be regarded as measures of possible union gains, and, second, by analyzing the problem in terms of indexes measuring possible trade-offs between union objectives. It is suggested that an analysis in these latter terms offers a far more cogent explanation of trade union wage restraint than can be provided by looking at policy outcome measures separately.     

Do bonus offers shorten unemployment insurance spells? results from the washington experiment

Unemployment insurance is intended to reduce hardship by providing labor force members with partial wage replacement during periods of involuntary unemployment. However, in performing this income maintenance function, unemployment insurance may prolong spells of unemployment. Evidence from a field experiment conducted in Illinois in 1984 suggested that offering unemployment insurance claimants a modest cash bonus for rapid reemployment would increase the speed of return to work and reduce program costs. In 1988 a similar experiment, examining several different bonus offers, was conducted in the state of Washington. Evidence from the Washington experiment indicates that bonus offers do change job seeking behavior, but that only relatively generous bonus offers—about six times the weekly benefit amount—should be expected to significantly change the behavior of people eligible for unemployment benefits.     

The determinants of minimum wage rates

This paper attempts to test the degree of responsiveness of Canadian provincial governments to different political groups in establishing their relative minimum wage policies over the 1975–1982 period. It discusses alternative explanations of minimum wage policies and focuses on the political market approach, where women, youth, small business and unions play a role. An econometric model is specified and estimated on pooled annual time series and cross-section data for nine provinces in Canada. The results tend to support most of the hypotheses.     

The Third Way: the Dutch experience

The Third Way in the Netherlands rests upon the institutionalized co-operation between the trade unions, the employers' organizations and the state. During the period of high unemployment in the 1980s this co-operation led to several agreements to moderate wage costs and to reduce statutory working hours with the object of reducing unemployment. In the 1990s,when labour became scarce, new measures were agreed upon to increase participation in the labour market and to boost productivity. Critics of the agreements suggest that the policies adopted by the socio-economic partners in the 1980s, particularly the moderation of wages and the reduction of work time to create more jobs, have a negative effect on the long-term prospects of attaining higher productivity.     

A positive theory of the earnings relationship of unemployment benefits

In a wage bargaining model, a stronger earnings relationship of unemployment benefits may reduce wages. Therefore, the benefit structure significantly influences profits and trade union utility, raising the question as to how the benefit structure is determined in the political process. We consider a government that chooses the earnings relationship in order to maximize its political support. Our model predicts a strong earnings relationship under right-wing governments and a weak relationship when unions are influential. Using panel data for 19 OECD countries, we find support for these theoretical predictions. Moreover, we show that the earnings relationship varies negatively with openness.     

The economic metric

This essay is about a money wage subsidy intended to reduce unemployment in regions with high unemployment and increase net exports. The genre of the essay is an idealised narrative of the historical development of the Regional Employment Premium, a money wage subsidy proposed by Nicholas Kaldor when he was fiscal adviser to the British Chancellor of the Exchequer and enacted by the labour Government in 1967. The article takes up the story of REP both as an innovative Keynesian instrument of intervention at the regional level and an illustration of the scientific coherence with which economic policies may be designed.     

Macroeconomic Policy and Government Popularity in Norway 1963–1986*

Following the mainstream modelling of ‘politico-economic interaction’, the author reviews the major analyses of the Scandinavian countries. Noting that empirical findings diverge, both for the reaction function and the popularity function, the article estimates these relations on Norwegian data. For the popularity function, the analysis suggests that rates of inflation have a weak, but statistically significant impact on the popularity of governments. For the recent non-socialist governments, the analysis suggests greater impact of unemployment and real wage growth as well. The results for the reaction function support the mainstream notion that declining rates of inflation and increasing unemployment tend to cause more expansionary government policies. The estimated equations do not support the proposition that the election cycle or governments position on the opinion polls influences economic decision-making. Finally, the findings are discussed in the light of traditional normative positions     

INDUSTRIAL RELATIONS, THE LAW AND GOVERNMENT STRATEGY

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Governments,trade unions and the macroeconomy: An expository analysis of the political business cycle

We have briefly reviewed the state of the art of research on the political business cycle in the context of a simple textbook model of the macroeconomy. It has been demonstrated that the government-generated political business cycle vanishes as expectations turn rational. Even then, however, non-inflationary policies apparently are time inconsistent. Hence, democracies seem to be stuck with some sort of inflationary bias.Countries with fairly centralized wage bargaining and strong labor unions have to deal with a second political source of instability in the macroeconomy: if the labor union's program contains political items such as equal educational opportunities for working class children, extended co-determination, a more equal distribution of wealth, and the like, they will prefer to see those parties in power who show the best prospects of implementing those items. So the trade union's wage bargaining strategies take into account how bargaining results influence the state of the economy and, hence, the reelection prospects of the ruling government — and they will do so in different ways, depending on whether the union prefers the government to the opposition party or vice versa.     

Class Power and Participatory Equality: Attitudes towards Economic Democracy in Denmark and Sweden*

Proposals for capital sharing (i.e. the spreading of ownership rights to productive assets), also known as 'economic democracy', have been advanced by the trade unions in both Denmark and Sweden. In view of their redistributive intent, these schemes have met surprisingly little enthusiastic response in traditional labor constituencies. The article makes an attempt to explain why . An examination of wage earner attitudes (which goes into greater detail for Denmark) shows that the presently entertained proposals appeal in a cross-cutting manner to conflictual notions of class power and participatory opportunity. The result is a fragmentation of wage earner support.     

Competition and solidarity: union members and immigration in Europe

This article addresses an understudied question in the comparative political economy of migration. How have trade unions shaped the attitudes of their members toward immigration? Unions are at the core of left-wing politics in most European countries, and support for immigration is usually a left-wing position. However, many of the core constituents of unions are those whose interests are most likely to be adversely affected by an increase in the supply of labour. The article shows that the pattern of European trade union leaders becoming supportive of open immigration policies has solidified over the past decade. It then provides evidence that this rhetoric has shaped the attitudes of union members and that the effect has become stronger over time. Finally, it shows that the effect is robust to the exclusion of countries where self-selection into unions on the basis of ideology is likely to be strongest.     

Social policy implications of the minimum wage law

Poverty and unemployment are two critical issues facing the United States today. Linked to both of these is the federal minimum wage law. Established under the Fair Labor Standards Act of 1938, the purpose of the law was—and still is—to eliminate, as rapidly as possible, labor conditions thought to be harmful to the “health, efficiency, and general well-being of workers ... without substantially curtailing employment or earning power.”¹ In other words, to eliminate low wages without eliminating jobs. This is a laudable goal, with which no one is likely to disagree. The question remains as to how effective the law has been in achieving this goal. Has it eliminated poverty? Or has it, to the contrary, had effects detrimental to those the law was designed to help? It is the contention here that the minimum wage law has played a significant role in causing unemployment among the most disadvantaged groups, including blacks, teenagers, unskilled workers, and people living in economically depressed regions. It is therefore proposed that further increases in the minimum wage be blocked and that the rate and coverage be held at the present level.     

Labor market policy: A comparative view on the costs and benefits of labor market flexibility

I review theories and evidence on wage‐setting institutions and labor market policies in an international comparative context. These include collective bargaining, minimum wages, employment protection laws, unemployment insurance (UI), mandated parental leave, and active labor market policies (ALMPs). Since it is unlikely that an unregulated private sector would provide the income insurance these institutions do, these policies may enhance economic efficiency. However, to the extent that unemployment or resource misallocation results from such measures, these efficiency gains may be offset. Overall, Scandinavia and Central Europe follow distinctively more interventionist policies than the English‐speaking countries in the Northern Hemisphere. Possible explanations for such differences include vulnerability to external market forces and ethnic homogeneity. I then review evidence on the impacts of these policies and institutions. While the interventionist model appears to cause lower levels of wage inequality and high levels of job security to incumbent workers, it also in some cases leads to the relegation of new entrants (disproportionately women, youth, and immigrants) as well as the less skilled to temporary jobs or unemployment. Making labor markets more flexible could bring these groups into the regular labor market to a greater extent, at the expense of higher levels of economic insecurity for incumbents and higher levels of wage inequality. © 2011 by the Association for Public Policy Analysis and Management.     

Unions in politics: public opinion in the United Kingdom and Denmark

Abstract. The paper examines public opinion about the political involvement of trade unions in the UK and Denmark. Both are systems in which trade unions are linked to a political party and both have high rates of union density. However, whereas British unions have contested governments of both parties and opposed regulation of industrial relations, Danish unions have a tradition of cooperation with government and are entangled in a web of institutionalized industrial relations. Results, however, are amazingly similar. Both the public at large and union members accept unions in general and also their political involvement, but oppose contestation of political authority. Irrespective of union behaviour, beliefs in the supremacy of parliament seems to be firmly rooted in public opinion.     

Wage subsidies as a labour market policy tool

In this paper, the author argues that wage subsidy is a valuable policy tool in the face of structural changes such as would result from the removal of tariffs, or in the face of a need to assist the disadvantaged or redress distributional inequity. After discussing wage subsidies that target specific segments of the population, which has the potential to improve both static and dynamic efficiency, the author goes on to discuss and contrast his universal wage subsidy proposal with the negative income tax and the minimum wage legislation, all of which are designed mainly for distributional purposes.     

Public spending interactions and local politics. Empirical evidence from French municipalities

This paper aims at testing whether there exist spending interactions between French municipalities by estimating a dynamic panel data model. Our results suggest that there are some interactions between neighbouring municipalities as regards primary and investment expenditures. A positive relationship between municipalities’ wage bill and unemployment rates is likely to stress a rise of temporary employment in those municipalities that suffer from social troubles. Further, the estimation results show that these interdependences also exist between cities whose mayors have the same partisan affiliation. Finally, our results confirm the opportunistic behaviour of local governments, which increase all categories of public spending in pre-electoral periods     

Organizational power and distributional conflict within OECD nations

Abstract. This article claims that a predator-prey model of cyclical growth is a useful concept for studying the dynamic relationship between wage and salary shares of GDP and employment. The rate of growth of employment is considered as an indicator of union bargaining strength; the change of the wage share is treated as a reflection of an ongoing distributional conflict between profits and wages. The paper discusses some of the analytic properties of the formal model. It continues with an attempt to fit the model to West German data for the period from 1960 to 1985. Given the formal rigidity of the model, this strategy is only partially successful. As a consequence, a more complex model is introduced which also relies heavily on the idea of a predator-prey cycle. As a fully-fledged political-economic model of the OECD type of systems, it allows us to study, among other issues, the implications of different union policies under the constraint of a serious unemployment problem.     

Continuity and Change: The New South Wales Public Sector Under Labor

This paper analyses recent developments in wage bargaining in the New South Wales public sector under the Labor government. It contrasts the approach taken by the former Coalition government with that of its successor. The discussion is focused on the Memorandum of Understanding between the Labor government and the public sector unions. With the agreement of the unions, the government has reasserted both substantive and procedural control over public sector industrial relations. This has not, however, prevented widespread industrial action in schools, hospitals and public transport and continuing tensions between the principal public service union and the government.     

Trade unions and social capital in transitional communist states: The case of China

In the study of social capital in Asia, it has been common to see kinship networks as the formation of social capital relations that create trust within society or within Asian states. This paper explores social capital surrounding industrial conflicts to see how unions relate to social capital formation in the context of recent reforms in state socialist China. This paper will argue that in the face of spontaneous outbursts of rapid social capital formation, as in industrial conflicts, the role of institutional agents is important for sustaining social capital. In China, the traditional model of the states bureaucratic trade unions has proved poorly adapted to coping with rapid social capital formation, either as organizer or suppressant. In the case of new workplaces, however, without the history of cynicism and state corporatism, the official unions that seek to represent members and sustain social capital are able to do so quite effectively. To build social capital, it is not necessary to destroy existing trade unions in China but to reorient their focus from bureaucratic centralist to representative organizations.