Wages, Employment, and Militancy: A Simple Model and Some Empirical Tests

This paper presents a model and some empirical findings on the wage-conflict curve. The theory is based on the view that two kinds of information asymmetries affect the process of wage fixing: firms have to cope with a moral hazard behavior in the supply of work effort, whilst workers have to face the firms' interest in supplying deformed information on outside job opportunities. Wage fixing is then explained by combining an efficiency wage theory with a bargaining strength theory. The outcome is an equation which makes wage changes in industry depend on the rate of inflation, the rate of change in industrial employment, and the workers' degree of militancy. The equation has been estimated on time series data of five countries (France, Germany, Italy, the United Kingdom, and the United States) in the postwar period. The econometric findings show that the rate of inflation and the rate of change in employment exert a decisive influence on wage dynamics in all five countries, whilst the autonomous degree of militancy exerts it in all of them except Germany.