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Market power, dismissal threat, and rent sharing: The role of insider and outsider forces in wage bargaining

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Author Info
Anabela Carneiro
Pedro Portugal

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Abstract

Purpose – The purpose of this study is to investigate to what extent the existence of high labor adjustment costs has some influence on the process of wage negotiation. In particular, it aims to analyse if the risk of being laid off has any impact on insiders' bargaining power and, consequently, on their wage claims. Design/methodology/approach – A collective bargaining model that closely follows those developed by Nickell et al. and Bentolila and Dolado is adopted and a longitudinal panel of large Portuguese firms from all sectors over the 1993-199 period is used. Findings – The results reveal that firms where insider workers appear to have more bargaining power tend to pay higher wages. In particular, we found that the threat of dismissal tends to weaken insiders' bargaining power and, consequently, to depress wages. Research limitations/implications – In future research an attempt should be made to measure directly the labor turnover costs. Originality/value – This paper presents robust empirical evidence using micro-data for individual firms that support one of the predictions of the insider-outsider theory that wages will be higher in sectors (firms) with high labor turnover costs.

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Publisher Info
Article provided by Emerald Group Publishing in its journal International Journal of Manpower.

Volume (Year): 29 (2008)
Issue (Month): 1 (May)
Pages: 30-47
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Handle: RePEc:eme:ijmpps:v:29:y:2008:i:1:p:30-47

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Related research
Keywords: Dismissal; Market forces; Pay bargaining; Portugal; Rents;

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  2. Ana Rute Cardoso & Pedro Portugal, 2005. "Contractual Wages and the Wage Cushion under Different Bargaining Settings," Journal of Labor Economics, University of Chicago Press, vol. 23(4), pages 875-874, October. [Downloadable!]
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  4. Hildreth, Andrew K G & Oswald, Andrew J, 1997. "Rent-Sharing and Wages: Evidence from Company and Establishment Panels," Journal of Labor Economics, University of Chicago Press, vol. 15(2), pages 318-37, April. [Downloadable!] (restricted)
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  5. Blanchflower, David G & Oswald, Andrew J & Garrett, Mario D, 1990. "Insider Power in Wage Determination," Economica, London School of Economics and Political Science, vol. 57(226), pages 143-70, May. [Downloadable!] (restricted)
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  6. Lever, Marcel H. C. & van Werkhooven, Jolanda M., 1996. "Insider power, market power, firm size and wages: Evidence from Dutch manufacturing industries," Labour Economics, Elsevier, vol. 3(1), pages 93-107, August. [Downloadable!] (restricted)
  7. Forslund, Anders, 1994. "Wage Setting at the Firm Level--Insider versus Outsider Forces," Oxford Economic Papers, Oxford University Press, vol. 46(2), pages 245-61, April. [Downloadable!] (restricted)
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  11. Nickell, S & Vainiomaki, J & Wadhwani, S, 1994. "Wages and Product Market Power," Economica, London School of Economics and Political Science, vol. 61(244), pages 457-73, November. [Downloadable!] (restricted)
  12. Graafland, J J, 1992. "Insiders and Outsiders in Wage Formation: The Dutch Case," Empirical Economics, Springer, vol. 17(4), pages 583-602.
  13. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August. [Downloadable!] (restricted)
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  14. Solow, Robert M, 1985. " Insiders and Outsiders in Wage Determination," Scandinavian Journal of Economics, Blackwell Publishing, vol. 87(2), pages 411-28.
  15. Richard Blundell & Stephen Bond, 2000. "GMM Estimation with persistent panel data: an application to production functions," Econometric Reviews, Taylor and Francis Journals, vol. 19(3), pages 321-340. [Downloadable!] (restricted)
    Other versions:
  16. Lindbeck, Assar & Snower, Dennis, 2002. "The Insider-Outsider Theory: A Survey," IZA Discussion Papers 534, Institute for the Study of Labor (IZA). [Downloadable!]
  17. Gregory, R G, 1986. "Wages Policy and Unemployment in Australia," Economica, London School of Economics and Political Science, vol. 53(210(S)), pages S53-74, Supplemen. [Downloadable!] (restricted)
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  19. Abowd, John M & Lemieux, Thomas, 1993. "The Effects of Product Market Competition on Collective Bargaining Agreements: The Case of Foreign Competition in Canada," The Quarterly Journal of Economics, MIT Press, vol. 108(4), pages 983-1014, November. [Downloadable!] (restricted)
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  20. Nickell, Stephen J & Wadhwani, Sushil, 1990. "Insider Forces and Wage Determination," Economic Journal, Royal Economic Society, vol. 100(401), pages 496-509, June. [Downloadable!] (restricted)
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  21. Nickell, Stephen & Kong, Paul, 1992. "An investigation into the power of insiders in wage determination," European Economic Review, Elsevier, vol. 36(8), pages 1573-1599, December. [Downloadable!] (restricted)
  22. Wulfsberg, Fredrik, 1997. "An Application of Wage Bargaining Models to Norwegian Panel Data," Oxford Economic Papers, Oxford University Press, vol. 49(3), pages 419-40, July. [Downloadable!] (restricted)
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  23. Blanchflower, David G, 1991. "Fear, Unemployment and Pay Flexibility," Economic Journal, Royal Economic Society, vol. 101(406), pages 483-96, May. [Downloadable!] (restricted)
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  24. Lindbeck, Assar & Snower, Dennis J, 1986. "Wage Setting, Unemployment, and Insider-Outsider Relations," American Economic Review, American Economic Association, vol. 76(2), pages 235-39, May.
  25. Holmlund, B. & Zetterberg, J., 1989. "Insider Effects In Wage Determination: Evidence From Five Countries," Papers 1989a, Uppsala - Working Paper Series.
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  26. Holzer, Harry J & Montgomery, Edward B, 1993. "Asymmetries and Rigidities in Wage Adjustments by Firms," The Review of Economics and Statistics, MIT Press, vol. 75(3), pages 397-408, August. [Downloadable!] (restricted)
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  27. Blanchflower, David G & Oswald, Andrew J & Sanfey, Peter, 1996. "Wages, Profits, and Rent-Sharing," The Quarterly Journal of Economics, MIT Press, vol. 111(1), pages 227-51, February. [Downloadable!] (restricted)
    Other versions:
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