Australian Lefty on Politics, Governance, Science and Info Management

Bargaining Power Index – interesting ideas

Posted by Dave Bath on 2007-06-19

Another stimulating post from on 2007-06-15 is Inequality and institutions in 20th century America by Levy and Temin, two Economics Professors of MIT which talks about a Bargaining Power Index.

It discusses outcomes for general workers in the free market, with and without institutionalized controls, (in an American context).  It would certainly be interesting to see an analysis done using Australian data to influence discussion of industrial relations policies of the two major parties, including WorkChoices The Bill That Cannot Be Named.

I’ll quote the abstract and one of the more interesting paragraphs.

First, the abstract: (my bolding):

Rising American inequality stems from efficiency-enhancing policy changes in the 1970s and 1980s. There is growing recognition that the current free-market income distribution – the combination of large inequalities and stagnant wages for many workers – creates its own “soft” inefficiencies as people become disenchanted with existing economic arrangements.

And here are what the authors see as implications: (my bolding):

We argue instead that the Golden Age relied on market outcomes strongly moderated by institutional factors.  Following the literature on economic growth that emphasises the role of institutions in economic outcomes, we argue that institutions and norms affect the distribution of economic rewards as well as their aggregate size.  Our argument leads to an explanation of earnings levels and inequality in which skill-biased technical change, globalisation and related factors function within an institutional framework.  In our interpretation, the recent impacts of technology and trade have been amplified by the collapse of these institutions, a collapse which arose because economic forces led to a shift in the political environment over the 1970s and 1980s.  If our interpretation is correct, no rebalancing of the labour force can restore a more equal distribution of productivity gains without government intervention and changes in private sector behavior.

See Also:
the 55-page academic article by Levy and Temin Inequality and institutions in 20th century America that was the source for the VoxEU post that stimulated my thoughts.
Dani Rodrik’s (a Harvard Prof) review of the original paper.

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