Striking a bargain: narrative identification of wage bargaining shocks

Žymantas Budrys, Mario Porqueddu and Andrej Sokol

Research Bulletin, 2022, vol. 98

Abstract: Labour market developments are important drivers of the business cycle and are therefore closely watched by monetary policymakers. One process with significant macroeconomic ramifications are wage negotiations, where workers and employers bargain over the surplus income generated by an employment relationship. Bargaining power determines how this surplus is split between negotiating parties. However, it is unobserved, and can be driven by a number of factors. We exploit information about key events in Germany that are relevant for wage negotiations, such as labour strikes and the introduction of a minimum wage, to pinpoint changes in bargaining power. We find that such wage bargaining “shocks” are important drivers of unemployment and inflation, that their effect on wages is almost fully reflected in prices, and that they reduce the vacancy rate and increase firms' profits and the labour share of income in the short run, but not in the long run. JEL Classification: J2, J3, E32, C32

Keywords: industrial action; minimum wage; narrative restrictions; structural vector autoregression; wage bargaining (search for similar items in EconPapers)
Date: 2022-07
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Related works:
Working Paper: Striking a Bargain: Narrative Identification of Wage Bargaining Shocks (2024)
Working Paper: Striking a bargain: narrative identification of wage bargaining shocks (2021)
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