Bargaining Power, Labor Market Institutions, and the Great Moderation

Aaron Pacitti
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Aaron Pacitti: Economics Department, Siena College, 515 Loudon Rd, Loudonville, NY 12211, USA

Eastern Economic Journal, 2015, vol. 41, issue 2, 160-182

Abstract: This paper argues that the low inflation during the Great Moderation had distributional biases and partly resulted from institutional shifts that depressed workers’ bargaining power and thus wage increases. The hypothesis is tested in multiple Phillips curve models using the cost of job loss as a measure of bargaining power for the 1960–2010 sample. Results indicate that rising employment insecurity and a stronger social bargain between firms and their employees — institutions proxied by strikes and the part-time share of employment, and the share of private employees receiving a pension, respectively — have significant negative effects on inflation and improve forecasting accuracy.

Date: 2015
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