RDP 9404: Wage Dispersion and Labour Market Institutions: A Cross Country Study 7. Conclusion

Our cross-country analysis of relative wage data suggests that the Australian labour market may have been relatively more flexible over the 1970s and 1980s than popular perception holds. Insofar as cross-country comparisons of wage flexibility (as measured by wage dispersion across ten sectors) can be made, we observe that Australian wage flexibility was on the scale of that in the United States – a country which is considered to have a flexible labour market. Moreover, Australian wages appear to have been relatively strongly correlated with factors influencing labour demand, a desirable property when labour is heterogeneous. In fact, the relationship between Australian sectoral wages, productivity and relative prices was among the strongest in the OECD countries for which data were available.

International experience shows that wage dispersion may be affected by changes to wage setting institutions within some countries. However, a strong relationship was not found between the degree of centralisation of wage setting institutions and wage dispersion across countries. Countries with similar levels of wage dispersion displayed a diversity of labour market institutions. While we did find positive correlations between wages, productivity and prices in the majority of countries, the cross-country evidence was insufficient to draw general conclusions. Overall, the sensitivity of wages to demand conditions does not appear to be systematically related to the degree of centralisation of the wage setting system.