Wage-Setting Institutions and Wage

This entry examines how wage-setting institutions (WSIs) shape wages across advanced economies. It focuses on four core mechanisms—minimum wages, collective bargaining, wage coordination, and wage centralization—drawing on theoretical insights, empirical evidence, and cross-country comparisons. The analysis shows that minimum wages safeguard low-paid workers but have heterogeneous employment effects depending on their level and enforcement. Collective bargaining raises average wages and compresses wage inequality, though it can reduce flexibility and create insider–outsider dynamics. Wage coordination stabilizes wage growth, prevents inflationary spirals, and fosters equity, while wage centralization promotes solidarity wages and macroeconomic discipline but may limit adaptability. Using The Organization for Economic Co-operation and Development (OECD) and Institutional Characteristics of Trade Unions, Wage Setting, State Intervention and Social Pacts (ICTWSS) data, the study highlights institutional diversity, ranging from coordinated Nordic models to fragmented liberal systems, and identifies trends toward “organized decentralization.” Policy implications suggest that WSIs should be viewed not as rigidities but as adaptable frameworks that can balance efficiency, equity, and stability when carefully designed. The conclusion emphasizes that the future of wage-setting lies in leveraging institutional complementarities to respond to globalization, technological change, and shifting labor market conditions.