RELATIVE WAGES UNDER DECENTRALIZED AND CORPORATIST BARGAINING SYSTEMS

In studying the relationship between wage inequality and centralization in collective bargaining, we distinguish central from local systems of wage determination by assuming that a central union takes the employment effects of negotiated wages into account, whereas unions disregard these effects in decentralized systems. Two different sources of wage differentials are studied separately: (i) heterogeneous workers with different skills and (ii) heterogeneous firms with varying levels of economic rent per employee. With respect to skill levels, the impact of centralization is ambiguous, whereas inter-firm wage differentials are likely to be lower in corporatist systems.