Testing between alternative wage-employment bargaining models using Belgian aggregate data

In this paper, we discriminate among alternative models of bargaining for wages and employment (right-to-manage, efficient bargaining and general bargaining models) using Belgian aggregate data. We estimate the ECM representation of a dynamic employment equation for each model using Engle-Granger's two-step estimation procedure. We use Phillips-Hansen's FME to obtain long-run parameter estimators which are optimal and asymptotically normally distributed. On the basis of non-nested tests, both the right-to-manage and the hypothesis that wage-employment negotiations are efficient are rejected in favour of the general bargaining model where outcomes are inefficient