#Drivers ed 2 page narrative drivers

We find that positive wage bargaining shocks propagate to the economy through higher unemployment and lower output. Minimum wage policy acts as a direct shift of bargaining power in favour of workers, and collective bargaining rounds that involve the threat of, or actual, strikes also boost workers’ bargaining power.

In Germany, the country we focus on, a number of historical events arguably constitute positive wage bargaining shocks that improve workers’ bargaining power, such as the introduction of a statutory minimum wage in 2015 and a number of labour disputes led by the prominent union IG Metall. We then study its effects on the macroeconomy. We propose a novel approach to identify exogenous variation (compared with other factors such as demand and supply shocks) in bargaining power from the data, using information about key events relevant for wage negotiations. Wage-setting reflects broader macroeconomic developments, but it is also affected by shifts in bargaining power that are not directly observed. Workers and employers bargain over the surplus income generated by an employment relationship, most notably in terms of wages.

#Drivers ed 2 page narrative drivers

We find that such wage bargaining “shocks” are important drivers of unemployment and inflation, that their effect on wages is almost fully reflected in prices, and that they reduce the vacancy rate and increase firms’ profits and the labour share of income in the short run, but not in the long run. We use information about key events in Germany relevant for wage negotiations, like labour strikes and the introduction of a minimum wage, to pinpoint changes in bargaining power between workers and employers. By Žymantas Budrys, Mario Porqueddu and Andrej Sokol