This paper studies the determinants of real wage rates using data on
Canadian labour contracts signed between 1978 and 1984. Its results are
consistent with Dunlop's neglected (1944) hypothesis that real pay movements
are shaped by product price changes (contrary to the predictions of implicit
contract theory and other models of wage inflexibility). The level of the
unemployment rate is found to lower the real wage level with an
elasticity between -0.04 and -0.13, whereas a Phillips Curve specification
which relates wage changes to the level of the unemployment rate is not
convincingly supported by the data. These results may be seen as consistent
with the view that collective bargaining is a form of rent-sharing in which
external unemployment weakens workers' bargaining strength.
*Published:
Published as "Real Wage Determination and Rent-Sharing in Collective Bargaining Agreements", Quarterly Journal of Economics, Vol. 107, no. 3(1992): 985-1002.
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