Unexpected Inflation, Real Wages, and Employment Determination in Union Contracts

David Card

No 612, Working Papers from Princeton University, Department of Economics, Industrial Relations Section.

Abstract: This paper presents new evidence on the relevance of nominal contracting models for employment determination in long term union contracts. A key aspect of these contracts, much emphasized in the macroeconomics literature, is the predetermined nature of nominal wages. Real wage rates therefore contain unanticipated components that reflect unexpected changes in prices and the degree of indexation in the contract. The empirical analysis, based on a sample of 1300 indexed and non-indexed contracts from the Canadian manufacturing sector, indicates that unexpected real wage changes are associated with systematic employment responses in the opposite direction. I conclude that nominal contracting provisions play a potentially important role in the cyclical properties and persistence of employment in the union sector.

Keywords: employment determination; real wages; efficient contracts (search for similar items in EconPapers)
JEL-codes: D81 D82 (search for similar items in EconPapers)
Date: 1988-05
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Unexpected Inflation, Real Wages, and Employment Determination in Union Contracts (1990)
Working Paper: Unexpected Inflation, Real Wages, and Employment Determination in Union Contracts (1988)
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Persistent link: https://EconPapers.repec.org/RePEc:pri:indrel:232

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