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Striking a bargain: narrative identification of wage bargaining shocks

Žymantas Budrys, Mario Porqueddu and Andrej Sokol

No 2602, Working Paper Series from European Central Bank

Abstract: We quantify the effects of wage bargaining shocks on macroeconomic aggregates using a structural vector auto-regression model for Germany. We identify exogenous variation in bargaining power from episodes of minimum wage introduction and industrial disputes. This narrative information disciplines the impulse responses to a wage bargaining shock of un-employment and output, and sharpens inference on the behaviour of other variables. The implied transmission mechanism is in line with the theoretical predictions of a large class of search and matching models. We also find that wage bargaining shocks explain a sizeable share of aggregate fluctuations in unemployment and inflation, that their pass-through to prices is very close to being full, and that they imply plausible dynamics for the vacancy rate, firms’ profits, and the labour share. 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: 2021-10
New Economics Papers: this item is included in nep-lma and nep-mac
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