Wage Bargaining, Privatisation, Ability to Pay and Outside Options: Evidence from Hungary

Abstract

This article examines the determinants of short-term wage dynamics, using a sample of large Hungarian companies for 1996–99. We test the basic implications of an efficient contract model of bargaining between incumbent employees and managers, which the data do not reject. In particular, there are structural differences between the ownership sectors consistent with our prior knowledge on relative bargaining strength and unionisation measures. Stronger bargaining position of workers leads to higher ability to pay elasticity of wages, and lower outside option elasticity. Our results indicate that while bargaining position of workers in domestic privatised firms may be weaker than in the state sector, the more robust difference relates to state sector workers versus privatised firms with majority foreign ownership.

Notes

 1. The authors' calculations use the April–June 2001 wave of the LFS. It is worth mentioning that the data are themselves of questionable precision. Union coverage in the mid-1990s was estimated to be in the range of 20–30% on the basis of firm and worker surveys (Neumann, 1997) while some often-quoted sources like ILO and OECD suggested a 60% level; see Cazes & Nesporova (2003).

 2. Note that the insider control model can be interpreted as a special (limiting) case of the efficient contract model.

 3. Hungarian Labour Force Survey, April–June 2002.

 4. In particular we will follow typical design and approximate the model by log-linear specification.

 5. One possibility is to use sectoral-level data on profits and demand shocks, provided the relevant data are available. This is the approach taken by Abowd & Lemieux (1993) and Christofides & Oswald (1992).

 6. However, they note that the depressing effect of higher unemployment is likely to be bigger in an aggregate wage equation.

 7. The data set in question was analysed in Köllő & Nagy (1996). The above-mentioned difference was estimated with logit, controlled for tenure and a blue-collar dummy using data on 5,072 workers.

 8. During our work on this article, we became familiar with Dobbelaere (2004), who applied a similar approach independently (her sample being drawn from Bulgaria 1997–98).

 9. Bojnec (2003) controls for human capital with survey instruments, and finds inconclusive results for a sample of Slovenian companies.

10. Alternatively, we could drop dl_rtremp altogether, replacing it by a set of interactive effects, created by multiplying dl_rtremp by all ownership sectors dummies. However, in that case we would risk enforcing the significant results for those new variables. Our specification is more conservative, i.e. it is a better method of testing whether state sector affiliation has a modifying effect on elasticity. The coefficient on dl_rtremp_st may be interpreted as a differential effect of state sector affiliation on elasticity.

Additional information

Notes on contributors

Janos Köllő

This research is part of the European Commission Framework 5 Project, ‘Regional Labour Market Adjustment in the Accession Candidate Countries,’ co-ordinated by Peter Huber, WIFO, Vienna. We are indebted to Martin Falk and Frederick Guy for comments, and to participants in the seminars at WIFO and UCL for discussion. All remaining mistakes are ours.

Tomasz Mickiewicz

This research is part of the European Commission Framework 5 Project, ‘Regional Labour Market Adjustment in the Accession Candidate Countries,’ co-ordinated by Peter Huber, WIFO, Vienna. We are indebted to Martin Falk and Frederick Guy for comments, and to participants in the seminars at WIFO and UCL for discussion. All remaining mistakes are ours.