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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

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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Bibliographic 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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References

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  1. 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.
  2. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  3. Andrew K.G. Hildreth and Andrew J. Oswald, . "Rent-Sharing and Wages: Evidence from Company and Establishment Panels," Economics Discussion Papers 425, University of Essex, Department of Economics.
  4. 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.
  5. Pedro Portugal & Olivier Blanchard, 2001. "What Hides Behind an Unemployment Rate: Comparing Portuguese and U.S. Labor Markets," American Economic Review, American Economic Association, vol. 91(1), pages 187-207, March.
  6. Stephen Nickell & D Nicolitsas, 1994. "Wages," CEP Discussion Papers dp0219, Centre for Economic Performance, LSE.
  7. Lindbeck, Assar & Snower, Dennis J, 1988. "Cooperation, Harassment, and Involuntary Unemployment: An Insider-Outsider Approach," American Economic Review, American Economic Association, vol. 78(1), pages 167-88, March.
  8. Nickell, S. & Wadhwani, S., 1989. "Insider Forces And Wage Determination," Economics Series Working Papers 9972, University of Oxford, Department of Economics.
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  11. Wulfsberg, F., 1995. "An Application of Wage Bargaining Models to Norwegian Panel Data," Memorandum 29/1995, Oslo University, Department of Economics.
  12. 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.
  13. Teulings,Coen & Hartog,Joop, 1998. "Corporatism or Competition?," Cambridge Books, Cambridge University Press, number 9780521590730, October.
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  17. 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 875-902, October.
  18. R Blundell & Steven Bond, . "Initial conditions and moment restrictions in dynamic panel data model," Economics Papers W14&104., Economics Group, Nuffield College, University of Oxford.
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Citations

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Cited by:
  1. Sónia Torres & Pedro Portugal & John T. Addison & Paulo Guimarães, 2010. "The Sources of Wage Variation: An Analysis Using Matched Employer-Employee Data," Working Papers w201025, Banco de Portugal, Economics and Research Department.
  2. Natália Monteiro & Miguel Portela & Odd Straume, 2011. "Firm Ownership and Rent Sharing," Journal of Labor Research, Springer, vol. 32(3), pages 210-236, September.
  3. Pedro Portugal, 2006. "Wage Setting in the Portuguese Labor Market: A Microeconomic Approach," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department.

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