Wage setting function
The wage setting function represents the relationship between the real wage and the unemployment rate . The wage setting function and the price setting function together form the AS-AD model . The wage setting function has an impact on the overall economic supply .
Basics for setting wages
The level of wages is mainly regulated in negotiations between the collective bargaining parties , mostly employers' associations and unions through collective agreements. Otherwise, the wages will be determined in individual negotiations between employers and employees.
The decisive factor in determining the remuneration is the training and the requirements associated with the job. With an increase in qualifications and areas of responsibility, the wages paid by an employer increase. Furthermore, the amount of the agreed wage depends on the costs and the situation on the labor market . If the unemployment rate is high, it is easy for the employer to recruit new staff. Employees, on the other hand, find it difficult to find adequate employment. The setting of high wages by the employee will hardly be achievable in the above-mentioned case. When considering the cost factor, it is about the price a company pays if it loses employees. The loss of important know-how makes wage claims easier to enforce. Another aspect for determining the amount of the wage is the reservation wage . This emerges from the weighing decisions of the individual individuals. The fixed wage should exceed the reservation wage.
The level of wages, the employment and unemployment rate is determined in the interaction of wage setting and price setting.
pay rate
The wage rate is the price an employee gets for their work. The nominal wage rate is an absolute, non- inflation-adjusted wage. This depends on the price expectations, the unemployment rate and a collective variable. The collective variable covers all factors that influence the wage rate and the unemployment rate. The nominal wages are not adjusted if the actual price level deviates from the expected price level. The real wage rate represents the inflation-adjusted wage rate. It is the wage measured in terms of purchasing power .
Variables of the wage setting function
The result of the negotiation processes is reflected in the wage setting function:
The variable W represents the aggregated wage rate and thus the average wage in monetary units. The nominal wage depends positively on price expectations ( ), negatively on the unemployment rate (u) and positively on the collective variable (z).
The wage setting function captures a relationship between negative unemployment and real wages. The higher the unemployment rate, the lower the real wage. A high number of unemployed worsens the negotiating basis of the workers. This results in a decrease in real wages.
The wage setting function is shown graphically in the form of a falling curve WS (WS = wage setting).
Price expectations
The real wage is decisive for contract negotiations. In this respect, workers are not interested in how much money they get for their work, but what they can buy with their wages. For entrepreneurs, the ratio of the nominal wage to the price of the goods produced (real wage) is decisive.
A rising price level causes the employee to make demands for higher nominal wages. Entrepreneurs are encouraged to pay higher wages. A doubling of the price level therefore leads to a doubling of nominal wages.
Unemployment rate
The negative sign of the unemployment rate shows that an increase in the unemployment rate leads to a decrease in nominal wages. With the increase in the number of unemployed, the bargaining basis of employees in collective bargaining is weakened. Workers are forced to accept the reduction in wages.
Collective variable
All factors are recorded that have an influence on the unemployment rate or on the expected price level. These can include institutional regulations. Have an influence on the collective variable a. the amount of unemployment benefit and unemployment insurance, the statutory minimum wage and regulations on protection against dismissal .
impact
It can be seen that an increase in unemployment benefit increases the reservation wage. This results in an increase in wages given the unemployment rate. Unemployment insurance therefore enables the unemployed to claim higher wages.
"Given the unemployment rate, higher unemployment benefits lead to an increase in wages". Similar effects are reflected in an increase in the statutory minimum wage.
Improved regulations on protection against dismissal, which make it expensive for companies to lay off workers, strengthen the bargaining base for employees. The wage rate also rises given the unemployment rate.
literature
- Oliver Blanchard and Gerhard Illing: Macroeconomics , 3rd edition. Pearson studies, Munich, 2003
- Gustav Dieckheuer: Macroeconomic theory and politics , 2nd edition. Berlin, 1995
- Frank W. Mühlbrandt: Wirtschaftslexikon , 2nd edition, Munich / Regensburg 1990
Individual evidence
- ↑ Blanchard, Oliver / Illing, Gerhard “Macroeconomics”, Pearson Studium, 3rd, updated edition, Munich 2003, page 190