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Striking a bargain: narrative identification of wage bargaining shocks

Author

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  • Budrys, Žymantas
  • Porqueddu, Mario
  • Sokol, Andrej
Abstract
Labour market developments are important drivers of the business cycle and are therefore closely watched by monetary policymakers. One process with significant macroeconomic ramifications are wage negotiations, where workers and employers bargain over the surplus income generated by an employment relationship. Bargaining power determines how this surplus is split between negotiating parties. However, it is unobserved, and can be driven by a number of factors. We exploit information about key events in Germany that are relevant for wage negotiations, such as labour strikes and the introduction of a minimum wage, to pinpoint changes in bargaining power. 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. JEL Classification: J2, J3, E32, C32

Suggested Citation

  • Budrys, Žymantas & Porqueddu, Mario & Sokol, Andrej, 2022. "Striking a bargain: narrative identification of wage bargaining shocks," Research Bulletin, European Central Bank, vol. 98.
    • Handle: RePEc:ecb:ecbrbu:2022:0098:
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    More about this item

    Keywords

    industrial action; minimum wage; narrative restrictions; structural vector autoregression; wage bargaining;
    All these keywords.

    JEL classification:

    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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