Wage Indexation: Social Benefit and Private Incentives

Martin Prachowny

Working Paper from Economics Department, Queen's University

Abstract: Do the conditions that give rise to social benefits from wage indexation coincide with conditions that generate private incentives to incorporate COLA clauses in union contracts? If unions and management are both risk-averse, the have incentives to index when monetary uncertainty exists. When the economy faces real shocks, unions still have incentive to index if the elasticity of labour demand is low; firms prefer indexation if the elasticity is high. General conclusions of coincidence of social and private benefits are sensitive to assumptions about utility functions of the two sides.

Pages: 18
Date: 1980
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Persistent link: https://EconPapers.repec.org/RePEc:qed:wpaper:368

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