Unemployment in OECD countries

Question 1

Factors which explain unemployment paths and cross-country variation

Answer 1

1. Policy differences or shocks. (e.g. IS shocks.)
2. Factors shifting WS-PS and Beveridge Curves.
3. Hysteresis and persistence mechanisms.
4. Degree of centralisation in wage bargaining.

Question 2

Impacts of Coordination in wage bargaining

Answer 2

A Hump shaped relationship exists.

Centralised and decentralised wage coordination produce similar outcomes, whereas industry level bargaining is characterised by less wage restraint.

Question 3

Centralised and Decentralised wage setting

Answer 3

Decentralised: Unions are more concerned about employment when considering real wage increases, therefore will exhibit restraint.

Centralised: National unions will consider the impact of prices on wages. If firms achieve a nominal wage increase, this will be matched with a nominal price increase. Also encourages restraint.

FLEXIBLE REAL

Question 4

Industry level wage setting

Answer 4

Industry level unions believe lower substitutability between products of different industries
will discourage falls in employment and output following a wage increase.

Question 5

Flexibility of wages

Answer 5

More flexible wage setting: Steeper WS curve. Associated with centralised or decentralised unions

Inflexible wage setting:

Shallower WS curve. Associated with industry level unions. Bigger fall in employment post shock.