Indexation and Wage Change Settlements: Evidence from Spanish Manufacturing Firms

Abstract

An endogenous switching model of ex‐ante wage changes under indexed and non‐indexed settlements is estimated for the Spanish manufacturing sector using collective bargaining firm data for the 1984–1991 period. The likelihood of indexing the settlement is higher for nationwide unions than for other union groups within the works council and increases with the expected level of inflation. For wage change equations, a common structure for indexed and non‐indexed settlements is strongly rejected, showing a source of nominal rigidity. For indexed contracts, the expected ex‐ante total inflation coverage is nearly complete. It is also shown that workers pay a significant ex‐ante change premium (differential) to obtain a cost of living allowance clause. However, the realised contingent compensation exceeds such a premium for all industries. Finally, important spillover efffects in wage setting and the decision to index the settlement have been detected.

The determinants of pay settlements: the influence of the national context

“…If employees are supposed to be risk-averse, this may result in a greater importance of inflation in wage setting in Spain than in Britain in order to reduce the greater uncertainty caused by the persistence of high inflation. However, very often this problem is faced through the introduction of wage indexation clauses in labour contracts (see Jimenez-Martin, 1998). This is well reflected in the Spanish economy, where a considerable percentage of labour contracts usually contain such clauses.…”

“…Conditions established at sector-level negotiations serve as benchmarking for firm bargaining due to the mandatory extension principle, and information circulates easily across bargaining levels (see Jimenez-Martin, 1998).…”

Strike Outcomes and Wage Settlements in Spain

“…Price expectations : Autoregressive integrated moving average (ARIMA) price increase forecast at the date of signing the contract (from Jiménez‐Martin, 1998a).…”

“…24 24 In order to compute the premia we follow Stengos and Swidinsky (1990) and Jiménez‐Martin (1998a). …”

Strike Outcomes and Wage Settlements in Spain

“…23 See Blanchard et al (1995) for a discussion. 24 In order to compute the premia we follow Stengos and Swidinsky (1990) and Jiménez-Martin (1998a).…”