Lump-Sum Payments and Wage Moderation in the Union Sector

Abstract

This chapter examines evidence—at the aggregate and firm level—on whether the spread of lump-sum payment plans can explain the decline in wage inflation, or more precisely the apparent downward shift of the aggregate union sector Phillips curve. It presents evidence on the growth in the use of lump-sum payments in major collective bargaining agreements during the 1980s. The chapter reviews evidence on the tendency for standard Phillips curves to over predict wage inflation in this period. It explores the association between the moderation in aggregate union wage inflation and the growth in lump-sum payments. The apparent moderation in wage inflation might then be illusory, with lump-sum payments representing nothing more than a change in the structure of union compensation. The spread of lump-sum payments appears to explain a portion of the moderation in wage growth in the union sector in this period.

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