Measuring what social partners do about wages over the business cycle

Abstract

Collective bargaining (CB) conducted by trade unions and employer associations (the social partners) plays a key role in the formation of wages in many countries. This paper investigates the potential interactions of CB with the macroeconomy by estimating the business cycle sensitivity of the many thousands of CB minimum wages. Drawing on matched worker and CB data covering all employees in Portugal, we find that, over the 1982-2017 period, CB real wages are nomore than 0.7% lower when the unemployment rate increases by one percentage point. This is less than half the equivalent entry-level effect (1.8) documented in (Martins et al., Am Econ J Macroecon 4:36-55, 2012). Moreover, much of the sensitivity of CB wages is driven by the high-inflation period until 1992, with effects as large as 5.2. Overall, our findings of limited CB real wage cyclicality suggest that, in Portugal (and possibly also in other countries in Southern Europe), the social partners may not yet have fully adjusted to the macroeconomic regime of Eurozone membership.