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Wage bargaining, privatisation, ability to pay, and outside options - evidence from Hungary

Janos Köllő () and Tomasz Mickiewicz

No 46, UCL SSEES Economics and Business working paper series from UCL School of Slavonic and East European Studies (SSEES)

Abstract: This paper examines the determinants of short-term wage dynamics, using a sample of large Hungarian companies for the period of 1996-1999. We test the basic implications of an efficient contract model of bargaining between the incumbent employees and the managers, which we are unable to reject. In particular, there are structural differences between the ownership sectors consistent with our prior knowledge on relative bargaining strength and unionisation measures. Stronger bargaining position of workers leads to higher ability to pay elasticity of wages, and lower outside option elasticity. Our results indicate that while bargaining position of workers in domestic privatised firms may be weaker than in the state sector, the more robust difference relate to state sector workers versus the privatised firms with the majority foreign ownership. We examine several extensions. We augment the bargaining specification by controls related to workers' skills and find that the basic findings are robust to that. We take a closer look at the outside options of the workers. We find some interactive effects, where unemployment modify the impact of availability of rents on wages. We interpret our results as an indication that bargaining power of workers may be affected by changes in their outside options. We also experiment with one concise indicator of reservation wage which is closest to the theoretical model specification and combines sectoral wages, unemployment benefits and regional unemployment levels,. We found that measure performing well. Finally, we found that while responsiveness of wages towards ability to pay is higher in the state sector, variation in wage dynamics is lower. This may indicate some wage smoothing in the state sector, consistent with the preferences of employees.

Keywords: wages; bargaining; unemployment; privatisation; foreign ownership; Hungary (search for similar items in EconPapers)
JEL-codes: D21 J30 L32 P31 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2004-10
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Journal Article: Wage Bargaining, Privatisation, Ability to Pay and Outside Options: Evidence from Hungary (2005) Downloads
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