Whether or not centralized wage-setting institutions enhance economic efficiency has been the subject of continuing controversy. On one side are those who believe that centralized bargaining institutions enable wage-setters to incorporate various externalities in their decisions that would be ignored by actors with only local concerns. On the other side are those who believe that centralized wage-setting suffers many of the same informational and incentive failures as central planning. Recently, some have argued that centralized wage-setting worked well in the past but has become less efficient over time. Previous attempts to study the impact of collective bargaining institutions on unemployment have been limited by the absence of reliable measures of institutional variables. Through the efforts of several scholars, a new data set containing time-series data on the organization of unions, employers' associations and wage-setting practices for 16 advanced industrial societies over a 42 year period (1950-1992) has recently been completed. The new data allows the testing of the importance of labor market institutions on the distribution of income and economic performance with much greater precision than previously. Past work by the principal investigator has found a strong impact of wage-setting institutions, particularly of the centralization of wage -setting and the concentration of union membership, on pay inequality. Centralized wage setting institutions and concentrated unions produce relatively flat wage distributions. In the current investigation, the researcher examines the impact of the centralization of wage-setting and union concentration on unemployment.
