Paper #92

Title:

The wage effect of an indexation clause: Evidence from Spanish manufacturing firms

Author:

Sergi Jiménez-Martín

Date:

August 1993 (Revised: September 1994)

Abstract:

An endogenous switching model of ex-ante wage changes under indexed and non-indexed settlements is estimated for the Spanish manufacturing sector using collective bargaining firm data for the 1984-1991 period. The likelihood of indexing the settlement is higher for nationwide unions than for other union groups within the works council and increases with the expected level of inflation. For wage change equations, a common structure for indexed and non-indexed settlements is strongly rejected, showing a source of nominal rigidity. For indexed contracts, the expected ex-ante total inflation coverage is nearly complete. It is also shown that workers pay a significant ex-ante wage change premium (differential) to obtain a cost of living allowance clause. However, the realised contingent compensation exceeds such a premium for all industries. Finally, important spillover effects in wage setting and the decision to index the settlement have been detected.

Keywords:

Indexation, wages, wage differential, spillover effects, unions, collective bargaining, switching

JEL codes:

J30, J41, C25

Area of Research:

Labour, Public, Development and Health Economics / Statistics, Econometrics and Quantitative Methods

Published in:

Oxford Bulletin of Economics and Statistics, 60(4), 449-484, 1998
With the title:
Indexation and Wage Change Settlements: Evidence From Spanish Manufacturing Firms

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