DP310 Insider Forces and Wage Determination

Author(s): Stephen Nickell, Sushil B Wadhwani
Publication Date: May 1989
Keyword(s): Hysteresis, Labour Productivity, Unions, Wages
JEL(s): 824, 825, 831
Programme Areas: Applied Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=310

This paper attempts to assess the relative importance of firm-specific factors (i.e., insider forces) in wage determination. Using firm-level data on 219 UK companies over the period 1974-82, it finds that a 1% rise in a firm's prices or productivity relative to the aggregate economy leads to a rise in relative wages of 0.1-0.2%. As a corollary to this, outside factors such as the aggregate wage and the unemployment rate also play an important role. There is evidence for hysteresis effects based on insider forces, but these are inversely related to the extent to which firms take national agreements into account.