In last years, the Great Recession has led to important changes in collective bargaining. Decentralization of the collective-bargaining process has been mainstreamed in all European countries. But it is difficult to discern this process in the data. The recent literature addresses decentralization processes in various European countries and modifications in other aspects of collective bargaining that involve its deregulation and decentralization.
In this paper, we will analyse how the collective bargaining process can influence the price setting of the economy, depending both on the number of unions, the market structure and the unions’ degree of (de)centralization.
Our theoretical departure point will be to suppose that the prices of the economy are determined jointly between unions and firms, assuming a prominent role of the unions in the determination of wages. Following Georgantzis and Díaz-Roldán (2018), our thesis is that if wages (negotiated by unions) are higher than the prices of the economy, an increase in inflation would be observed. This result seems to be obvious when unions negotiate nominal wage increases instead of real wage increases. The higher the inflation observed, the greater the gap in the inflation differential respect to the monetary union’s average.
In order to check our hypothesis, we will perform an empirical application. To do that, we will use data provided by ICTWSS: Database on Institutional Characteristics of Trade Unions, Wage Setting, State Intervention and Social Pacts in 51 countries between 1960 and 2014 (Visser, 2016), where we can find a variable capturing the actual degree of centralisation of wage bargaining. Combining this data on centralization of wage bargaining with those on inflation, and inflation differentials, provided by Eurostat, we will estimate the relationship between the degree of centralisation of wage bargaining and the inflation of Eurozone members, as well as the relationship with the persistence in inflation differentials.
The results we could find, would be particularly relevant in a monetary union, where the inflation targeting goal is common to all member states, but inflation differentials persist among them.