Wage Determination and Recession: A Report on Recent Work
| Published date | 01 July 1986 |
| DOI | http://doi.org/10.1111/j.1467-8543.1986.tb00680.x |
| Date | 01 July 1986 |
| Author | Andrew J. Oswald |
British Journal
of
Industrial Relations
24:2
July
1986
0007-1080
$3.00
Wage Determination
and
Recession:
A
Report
on
Recent Work
Andrew
J.
Oswald*
1.
INTRODUCTION
Over the last five years many economists have become interested in the
study
of
wage determination.’ It is now widely believed that old-fashioned
competitive theories
of
the labour market are inadequate. The challenge
has been how to improve upon them, by constructing theoretical models in
which wages are fixed by a process
of
bargaining between firms and unions,
and how to apply those new models to the data. The stereotype
of
the
economist who thinks
of
the market for labour as much like the market for
tomatoes
-
possibly a straw man from the outset
-
is gone forever.
The aim of this paper is to describe some
of
the new work on the
economics of pay. It will be assumed throughout that a successful analysis
of
wage determination must have three qualities. First, it must fit the
stylised facts. Second, it must be based on neoclasssical axioms of
rationality (that is, for example, it must not rely on the idea that agents act
randomly or make systematic and repeated errors). Third, it must provide
testable hypotheses which are not rejected by the data.*
A
good model of
the labour market, in other words, must satisfy three groups
of
profession-
als
-
industrial relations researchers, economic theorists, and
econometricians. This is a formidable task.3 It is made especially difficult
by the suspicion of one group for another, which unfortunately we have all
been taught to think
of
as normal. The first point of this paper is that
economists and industrial relations specialists should be encouraged to
look each other in the eye.
It seems likely that it is the world-wide economic recession which has
stimulated the growth in research on labour markets. Unemployment rates
have risen disturbingly over the
1980s
(from
6
per cent to
13
per cent in Great
Britain), and the ‘rigidity’
of
real wage rates is often blamed.4 More
generally, unionisation rates approach
70-90
per cent
of
the population in
the Scandinavian nations, Austria and Belgium, and
50
per cent in countries
like Britain and Australia. The effective coverage
of
collective bargaining is
often higher: three quarters
of
Britons, for example, have their wage rates
*
Senior Research Fellow, Centre
for
Labour
Economics, London School
of
Economics.
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