Centralisation, Employment and Wage Dispersion

This paper is about bargaining institutions and their influence on wage dispersion and employment. Using novel statistical measures, it compares labor-market performance in seventeen OECD countries since 1973. It concludes that countries with highly centralized wage bargaining have generally achieved the best performance, combining high employment with low wage dispersion, thereby avoiding certain major inequalities prevalent elsewhere. The paper also presents a formal model of bargaining based on the work of L. Calmfors and J. Driffill (1988). Simulations are used to illustrate how this model generates the kind of outcomes described in the empirical part of the paper.