"Collective Bargaining, Wage Moderation, and Macroeconomic Performance Revisited"

A large literature in comparative political economies argues that centralized or coordinated collective bargaining improves macroeconomic outcomes by producing wage moderation, i.e. wages that grow systematically less than productivity. Wage moderation, it is argued, stimulates investment, employment, and growth. According to Barry Eichengreen (1997) and many others, this mechanism is at the root of the post-war reconstruction in European countries. There are several problems with the received wisdom: 1) First, wage moderation rarely features directly in the analysis. Most studies regressed a measure of performance against a measure of collective bargaining structure and attributed the results to the presence or absence of wage moderation. 2) Recent studies focusing specifically on wage moderation have argued that wage moderation emerged only in the 1990s. 3) The relationship may have possibly be misspecified by previous studies and this may account for the lack of robustness. According to growth model theory, wage moderation leads to growth only in profit-led economies, while in wage-led economies it leads to stagnation. Based on an econometric analysis of OECD countries between 1974 and 2007, this paper shows that the effects of collective bargaining structure on growth and employment are contingent on the prevailing growth model and suggests that the reason why coordinated bargaining contributed to growth in the Trentes Glorieuses has little to do with wage moderation per se and more with wage compression in favor of low skill workers.