Organizational Determinants of Wage Moderation

Abstract

This article contributes to the political economic literature regarding the effects of industrial relations institutions on national economic outcomes. Based on an econometric analysis of the determinants of wage moderation in sixteen industrialized countries between 1974 and 2000, it argues that the organizational characteristics of trade unions have a significant impact on wage dynamics. Controlling for a number of institutional and economic factors, the countries in which trade union confederations directly involve workers in the process of collective bargaining ratification have on average lower wage growth relative to productivity than others. The authors also find that collective bargaining coordination and contract ratification magnify each other's wage-dampening effect. Through case studies of Ireland and Italy, the article examines the causal mechanisms underlying the uncovered statistical regularities and concludes that, particularly at a time in which classic political exchange is waning, worker involvement in contract ratification allows confederation leaders to resolve conflicting claims inside their organizations at lower wage levels than are achieved by a less participatory governance process.