Research Discussion Paper – RDP 9404 Wage Dispersion and Labour Market Institutions: A Cross Country Study


This paper examines the issue of wage flexibility in an international context using sectoral wage dispersion data from fourteen OECD countries. An emphasis is placed on the evaluation of Australian institutions and data. We draw comparisons between a measure of wage dispersion and the degree of centralisation of a country's wage setting institution to determine whether decentralised wage setting institutions are necessarily associated with more flexible wages. Inter-country comparisons are drawn among the levels of wage dispersion over time, and the relationship between wages and demand conditions for labour, including productivity and relative prices, are examined. We observe that no strong systematic relationship exists between wage dispersion and the degree of centralisation of labour market institutions. We also find that relative to most other OECD countries for which data are available, Australian wages were strongly correlated both with labour demand conditions and productivity growth over the period 1975–90.

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