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Wage Bargaining and Incomes Policy: Possible lessons for Eastern Europe

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  • Richard Layard
  • Diane J. Reyniers

Abstract

In Eastern Europe (as in Western) wages will be mainly set by collective bargaining. The bargains are likely to be at a level of the firm. Cross-country evidence suggests that where there is a high coverage of collective bargaining and bargaining is at a firm level, quite high unemployment is needed to restrain inflation. Rigid norms for wage growth cannot last indefinitely, though they can help for a shortish time during disinflation. Tax-based incomes policy, however, can offer a permanent source of downward pressure on nominal wages, while permitting flexibility to preserve efficiency. There should be a uniform norm (unrelated to the circumstances of the enterprise). The norm should relate to average hourly earnings (or earnings per worker), and not to the total wage bill (WN). The latter would discourage structural adjustment.

Suggested Citation

  • Richard Layard & Diane J. Reyniers, 1990. "Wage Bargaining and Incomes Policy: Possible lessons for Eastern Europe," CEP Discussion Papers dp0002, Centre for Economic Performance, LSE.
    • Handle: RePEc:cep:cepdps:dp0002
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    Cited by:

    1. Corneo, Giacomo, 1995. "National wage bargaining in an internationally integrated product market," European Journal of Political Economy, Elsevier, vol. 11(3), pages 503-520, September.
    2. Vodopivec, Milan & Hribar-Milic, Samo, 1993. "The Slovenian labor market in transition : issues and lessons learned," Policy Research Working Paper Series 1162, The World Bank.
    3. Vodopivec, Milan & Vroman, Wayne, 1993. "The Armenian labor market in transition : issues and options," Policy Research Working Paper Series 1193, The World Bank.

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