Collective Bargaining and Public-Sector Wage Setting

The author uses Canadian public-sector union contracts from a 30-year period to study the factors influencing wage setting. He also undertakes complementary analyses of contract duration and the use of Cost-of-Living Adjustment (COLA) clauses to examine how variables capturing uncertainty and contracting costs affect contract length and the use of indexing provisions. Findings show that inflation expectations, unemployment rates, wage growth, and COLA clauses are associated with fairly large effects on wage settlements that are much more prominent during the period prior to the Bank of Canada adopting an inflation target (i.e., before 1991). They also indicate that variables capturing inflation uncertainty and contracting costs do not have a large effect on contract duration, but contracting costs do have a larger effect on the use of indexing provisions. Results suggest that indexing provisions are an important inflation coping mechanism for both wage settlements and contract duration, with bargaining pairs willing to trade off smaller base wage changes and longer contracts for them.