Wage bargaining in the presence of social services and transfers

World Politics

Volumn 57, Issue 1, 2004, Pages 99-142

  Mares, Isabela ^a  

^a STANFORD UNIVERSITY   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

BARGAINING; WAGE DETERMINATION;

EID: 24044533887     PISSN: 00438871     EISSN: None     Source Type: Journal    
DOI: 10.1353/wp.2005.0011     Document Type: Article

References (74)

1. OECD, Taxing Wages (Paris: OECD, 1999).
2. OECD, Statistical Compendium: Revenue Statistics (Paris: OECD, 1995).
3. Scharpf, Governing in Europe: How Effective? How Democratic? (Oxford: Oxford University Press, 1998), 142.
4. See, for example, Conseil Supérieur de l'Emploi, L'allègement des charges sociales sur les bas salaries (Paris: La Documentation française, 1996).
5. For an overview of these policy developments, see François Bourguignon and Dominique Bureau, eds., L'architecture des prélèvements en France: Etat des lieux et voies de réforme (Paris: La Documentation française, 1999).
6. See, for example, Gert Wanger, "Soziale Sicherung im Spannungsfeld von Demokratie und Atbeitsmarkt," in I. Nubler and H. Trabold, eds., Herausforderungen an die Wirtschaftspolitik an der Schwelle zum 21. Jahrhundert (Berlin: Sigma, 1999).
7. For a formulation of these arguments, see David Cameron, "Social Democracy, Corporatism and the Representation of Economic Interests in Advanced Capitalist Societies," in John Goldthorpe, ed., Order and Conflict in Contemporary Capitalism (New York: Oxford University Press, 1984);
8. Gøsta Esping-Andersen, Three Worlds of Welfare Capitalism (Princeton: Princeton University Press, 1990), 105-43.
9. Calmfors and Driffill, "Bargaining Structure, Corporatism, and Economic Performance," Economic Policy 6, no. 1 (1988).
10. As will be shown below, in the Calmfors-Driffill setup, the presence of the hump is conditional on some technical details related to the elasticity of substitution of goods produced in different sectors. The hump is more pronounced in less homogenous economics (that is, producing goods that are lesser substitutes of each other). In the limit case of an economy in which all sectors produce goods that are very close substitues for each other, the relationship between the centralization of the wage-bargaining system and the level of unemployment becomes monotonic.
11. For representative examples of research that attempt to model the interaction between the corporatist literature on wage bargaining and the literature on macroeconomic policy, see Fritz Scharpf, Crisis and Choice in European Social Democracy (Ithaca, N.Y.: Cornell University Press, 199 1);
12. Peter Hall and Robert Franzese, "Mixed Signals: Central Bank Independence, Coordinated Wage Bargaining and European Monetary Union," International Organization 52, no. 3 (1998);
13. Torben Iversen, "Wage Bargaining, Central Bank Independence and the Real Effects of Money," International Organization 52, no. 3 (1998);
14. idem, Contested Economic Institutions: The Politics of Macroeconomics and Wage Bargaining in Advanced Democracies (Cambridge: Cambridge University Press, 1999);
15. David Soskice and Torben Iversen, "The Non-Neutrality of Money with Large Price or Wage Setters," Quarterly Journal of Economics 115, no. 1 (2000).
16. Iversen (fn. 10, 1998), 48-49.
17. See Cameron (fn. 7);
18. and Esping-Andersen (fn. 7).
19. This specification of the utility of trade unions distinguishes this model from the Daveri and Tabellini model; see Francesco Daveri and Guido Tabellini, "Unemployment and Taxes: Do Taxes Affect the Rate of Unemployment?" Economic Policy 15, no. 30 (2000), 98.
20. This assumption of full unionization can easily be relaxed. More specifically, one can assume that for workers who are nonunionized, wages are determined in a decentralized setting (in other words, both I and J are very large). The equilibrium wage level of this economy is a combination of the wages set in the unionized part of the economy and of the wages that are determined in this decentralized setting.
21. I follow both the assumption of Iversen (fn. 10, 1999) and that of Iversen and Soskice;
22. see Torben Iversen and David Soskice, "Monetary Integration, Partisanship and Macroeconomic Policy" (Paper presented at the annual meeting of the American Political Science Association, Atlanta, Ga., 1999), 5. To make the comparison of the results easier, I use the same notation.
23. 1-β where M is the nominal money supply, P is the aggregate price level, and β is the parameter measuring the degree to which the central bank follows a nonaccommodating policy rule. "If the central bank it completely accommodating, the central bank fixes the real money supply by setting M equal to the price level, whereas if the central bank is completely non-accommodating, it fixes the nominal money supply and sets M equal to unity" (p. 5). In other words, in the case of nonaccommodating monetary policy (β = 1), the money supply is independent of the price level, while in the case of accommodating monetary policy (β = 0), the money supply is set equal to the price level.
24. Andreu Mas-Colell, Microeconomic Theory (New York: Oxford University Press, 1995), chap. 3.
25. i is the employment rate in sector i (p. 7);
26. Calmfors and Driffill (fn. 8).
27. For a formulation of these arguments by "corporatist scholars," see Cameron (fn. 7);
28. and Esping-Andersen (fn. 7).
29. For these views, see Michael Bruno and Jeffrey Sachs, Economics of Worldwide Stagflation (Cambridge: Harvard University Press, 1985);
30. Cameron (fn. 7);
31. and David Soskice, "Wage Determination: The Changing Role of Institutions in Advanced Industrialized Societies," Oxford Review of Economic Policy 6, no. 4 (1990), 36-61.
32. See Calmfors and Driffill (fn. 8).
33. More specifically, the models make different assumptions about the relative wage elasticities of demand, in other words, about the effects of changes in the level of wages in one sector on the level of employment in another sector. The models predicting a monotonic relationship between the centralization of the wage-bargaining system and the level of unemployment assume that changes in the level of wages in one union will have the same effect on the level of demand (and thus employment) in the remaining N-1 unions in the economy. By contrast, the Calmfors-Driffill model assumes that changes in the level of wages of one union will have different effects on the level of employment across different unions. Isabela Mares, Taxation, Wage Bargaining and Unemployment (New York: Cambridge University Press, forthcoming), chap. 2.
34. Given that the predictions of the theoritical model developed in this article extend (and challenge) the work of Calmfors and Driffill and Iversen and Soskice, the article pursues the same empirical strategy as the aerlier research. I too test the model using unemployment as the dependent variable.
35. The countries included in the analysis are Austria, Belgium, Canada, Denmark, Finland, France, Germany, Italy, Japan, Netherlands, Norway, Sweden, Switzerland, the United Kingdom, and the United States. As is standard in the literature, I use four-year averages for each country; Iversen (fn. 10, 1998, 1999).
36. For an overview of these recent measures, see Lane Kenworthy, "Wage-Setting Measures: A Survey and Assessment," World Politics 54 (October 2001).
37. Miriam Golden, "The Dynamics of Trade Unionism and National Economic Performance," American Political Science Review 87, no. 2 (1993), 444.
38. Philippe Schmitter. "Interest Intermediation and Regime Governability in Contemporary Western Europe and North America," in Suzanne Berger, ed., Organizing Interests in Western Europe: Pluralism, Corporatism and the Transformation of Politics (Cambridge: Cambridge University Press, 1981). Schmitter's "corporatism score" measures both the organizational centralization and the associational monopoly of the labor movement. While the first term is a measure of the level of the wage-bargaining authority, the second term captures the number and importance of competing unions at each level of bargaining or what Golden refers to as "union monopoly";
39. Golden (fn. 25), 444.
40. Cameron (fn. 7). Cameron aggregates three institutional characteristics of the labor movement: the power of the labor confederation in collective bargaining (a proxy for the locus of decision-making authority), the "organizational unity of labor" (a measure of union monopoly), and an average measure of union density.
41. Calmfors and Driffill (fn. 8), 52-53. Calmfors and Driffill measure the level of bargaining and the degree of coordination within organizations on both the union and the employer side.
42. ij is the share of workers covered by union (or federation) i at level j.
43. Hall and Franzese (fn. 10), 530.
44. Franz Traxler and Bernhard Kittel, "The Bargaining System and Performance: A Comparison of Eighteen OECD Countries," Comparative Political Studies 33, no. 9 (2000). I used the "bargaining centralization" index from the Traxler/Kittel data set.
45. Miriam Golden, Peter Lange, and Michael Wallerstein, "Union Centralization among Advanced Industrial Societies: An Empirical Study," Data set from http://www.shelley.polisci.ucla.edu/data (downloaded November 1998). I have used the "overall wage-setting centralization" measure from the Golden, Lange, Wallerstein data set. To create a time-invariant measure, I have recoded the Golden, Lange, Wallerstein measure as follows. First, I created a time-invariant score for each country. Next, I rank ordered the economies (with economics having the most centralized labor-market institutions taking the highest values on this centralization score).
46. The OECD measure of centralization of wage bargaining is computed as the average of two separate indices: a bargaining centralization index and a "coordination index"; see OECD, Employment Outlook (Paris: OECD, 1997), 71.
47. Golden (fn. 25), 444.
48. I average the time-varying indices, such as Iversen (fn. 10)
49. and Golden-Lange-Wallerstein (fn. 32). http://www.shelley.polisci.ucla.edu/data
50. Denmark and Finland are, of course, borderline cases. For a discussion of the "organizational fragmentation and the conflictual labour relations" in Finland, see Bernhard Ebbinghaus and Jelle Visser, Trade Unions in Western Europe since 1945 (London: Macmillan, 2000), 201.
51. Nathaniel Beck and Jonathan Katz, "What to Do (and Not to Do) with Time-Series Cross-Section Data," American Political Science Review 89, no. 3 (1995).
52. For the development of this measure, see Iversen (fn. 10, 1999), 57-60.
53. Robert Franzese, Macroeconomic Policies of Developed Democracies (New York: Cambridge University Press, 2002).
54. I am grateful to an anonymous reviewer for recommending this strategy.
55. These results are robust to the inclusion of a number of additional control variable. For additional results, see Mares (fn. 21).
56. See Lucio Baccaro, "The Organizational Consequences of Democracy: Labor Unions and Economic Reforms in Contemporary Italy" (Ph.D. diss., Sloan School of Management, MIT, 1999);
57. Julia Lynch and Karen Anderson, "Internal Institutions and the Policy Preferences of Organized Labor: The Effects of Workforce Aging on Unions' Support for Pension Reform" (Paper presented at the Conference of Europeanists, Chicago, April 2004).
58. Bjorn Volkerink and Jacob de Haan, Tax Ratios: A Critical Survey (Paris: OECD, 2000);
59. Bjorn Volkerink, Jan-Egbert Sturm, and Jacob de Haan, "Tax Ratios in Macroeconomics: Do Taxes Really Matter?" Working Paper 7/2001 (Madrid: European Economy Group, 2001);
60. Eurostat (Statistical Office of the European Communities), Structures of the Taxation Systems in the European Union, 1970-1995 (Luxembourg: Eurostat, 1997);
61. European Commission, "Effective Taxation and Tax Convergence in the EU and the OECD," Memo 5/1997 (Brussels: Directorate General II of the European Commission, 1997);
62. OECD, Tax Burdens: Alternative Measures (Paris: OECD, 2000).
63. Enrique Mendoza, Assaf Razin, and Linda Tesar, "Effective Tax Rates in Macroeconomics: Cross-Country Estimates of Tax Rates on Factor Incomes and Consumption," Journal of Monetary Economic 34, no. 2 (1994). The time series used in this model updates Mendoza's average labor tax rates series and has been developed and generously provided by Tom Cusack. Corporate taxes play only a minor role in financing the major welfare state programs;
64. see Martin Schludi and Steffen Ganghoff, database (Cologne: Max-Planck Institute for the Study of Societies, 1998), Table 2.2.2.2. Thus, labor tax rates are an appropriate measure of the tax effort necessary to finance social policy commitments.
65. A number of recent papers have examined the impact of the growth in the tax burden on the employment performance of OECD economies. These papers differ, however, in the specification of the theoretical model and in the sample size. See Daveri and Tabellini, "Unemployment and Taxes," Economic Policy 15 (2000);
66. Stephen Nickell and Richard Layard, "Labour Market Institutions and Economic Performance," in O. Ashenfelter, and D. Card, eds., Handbook of Labour Economics (Amsterdam: North Holland, 1999). In the case of Nickell and Layard, the sample consists of twenty OECD countries over two five-year periods, 1983-88 and 1989-94. Thus, the sample size is much smaller than the sample size of this article. Daveri and Tabellini examine fourteen countries over six five-year periods. The labor-market variables used in their analysis are a variable measuring employment protection and a variable measuring the duration of unemployment benefits. As such, they do not test hypotheses about the hump-shaped relationship between labor-market institutions and unemployment.
67. Evelyne Huber, Charles Ragin, and John Stephens, Comparative Welfare States Dataset, 1997, available at http://www.lisproject.org/ publications/welfaredata/welfaredata/welfareaccess.htm, updated April 2004;
68. Eric Browne and John Dreijamis, eds., Government Coalitions in Western Democracies (New York: Logman, 1982).
69. Douglas Hibbs, "Political Parties and Macroeconomic Policy," American Political Science Review 71, no. 4 (1977);
70. idem, "Partisan Theory after Fifteen Years," European Journal of Political Economy 8 no. 2 (1992);
71. Alberto Alesina, "Politics and Business Cycles in Industrial Democracies," Economic Policy 8 (1989).
72. Francis Castles and Peter Mair, "Left-Right Political Scales: Some 'Expert' Judgments," European Journal of Political Research 12, no. 1 (1984).
73. The correlation between these two variables is 42. I also ram separate models (not reported here) that examined only the impact of higher taxes on unemployment. The analysis produced results that are very similar to the results reported here.
74. Mass-Colell (fn. 16).