WAGE BARGAINING, HARD MONEY AND ECONOMIC-PERFORMANCE - THEORY AND EVIDENCE FOR ORGANIZED MARKET ECONOMIES

The political and economic couplings between wage bargaining instituti ons and macro-economic policy regimes are explored in this article. It is argued that in advanced industrialized democracies with well-organ ized unions and employers' associations, macro-economic performance (e specially unemployment) is the outcome of an interaction between the c entralization of the wage bargaining system and the monetary policy re gime. Thus, a decentralized bargaining system in which the government is credibly committed to a non-accommodating monetary policy rule pose s an institutional alternative to a centralized mode of wage regulatio n where the government enjoys macro-economic policy flexibility. Based on time-series data from ten highly organized market economies, I sho w that both of these institutional 'equilibria' produce superior emplo yment performance, but also that the two systems are associated with v ery different distributional outcomes, and that they are supported by different coalitions of organized interests. In addition to predicting economic outcomes, the proposed model provides a theoretical framewor k for analysing institutional change in wage bargaining systems and in macro-economic policy regimes.