ABSTRACT
Wage determination is the outcome of a decentralized bargaining process where distributional conflict arises over relative income shares (Rowthorn, 1977). Conflict, however, does not only arise between workers and capitalists: there is, furthermore, the influence of wage relativities on wage formation (Keynes, 1936, and more recently Skott, 1991) which can play an important role in explaining wage stickiness. Wage efficiency theories as well as hysteresis models (Shapiro and Stiglitz, 1984; Lindbeck and Snower, 1986; Blanchard and Summers, 1987) may also be embedded into this framework as complementary theories, providing further reasons why wages do not fall to clear the market. These theories are compatible with the framework proposed in this chapter but our approach differs from most other contributions in two areas: we emphasize the importance of wage relativities and the existence of conflict over the functional distribution of income. Clearly, there are differences between the Post Keynesian ‘real wage resistance’ hypothesis, the very Keynesian ‘wage relativities’ hypothesis and the more labour-market-oriented model of ‘wage efficiency’ and ‘hysteresis’, which adopt a New Keynesian perspective. This chapter, however, demonstrates that so long as conflict elements are the focus of the analysis, the three theories can sit comfortably in a model which is validated by the UK experience.
