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

Author
Keywords
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.

Year of Publication
1988
Number
232
Date Published
05/1988
Publication Language
eng
Citation Key
American Economic Review, 80, September 1990
URL
Working Papers