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Wage-setting Decisions on Newly Hired Employees: Survey Evidence from Colombian Firms

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  • Ana María Iregui

    ()

  • Ligia Alba Melo B.

    ()

  • María Teresa Ramírez G.

    ()

Abstract

This paper uses a survey on wage formation that was applied to 1,305 Colombian firms to study wage-setting decisions with respect to newly hired employees. The Colombian case is interesting, since the country’s labour market performance, especially its unemployment rate and level of informality, differs not only from the developed countries, where studies of this type are concentrated, but also from most Latin American countries. The replies to the survey indicate wages for the newly hired are based mainly on a predefined wage structure. This may help to explain, in part, the presence of downward nominal wage rigidities in Colombia, since firms are unwilling to differentiate the pay of new hires from the wages of existing workers. Using logit models, we find that the probability of wages being bargained between the employee and the employer is less in the case of larger firms. On the contrary, the larger firms are more likely to determine wages according to a predefined wage structure. In general, the presence of flexible benefits and variable pay reduces the probability of wages being determined pursuant to a predefined wage structure. The results also indicate the worker’s educational level, experience and job duties are the main determinants of the wages of newly hired employees.

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Bibliographic Info

Paper provided by Banco de la Republica de Colombia in its series Borradores de Economia with number 632.

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Handle: RePEc:bdr:borrec:632

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Related research

Keywords: Wage setting; newly hired employees; wage rigidities survey evidence; logit; Colombia Classification JEL: C25; J30; J50.;

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  1. Ana María Iregui B. & Ligia Alba Melo B. & María Teresa Ramírez, 2010. "Wage differentials across economic sectors in the Colombian formal labour market: evidence from a survey of firms," BORRADORES DE ECONOMIA 007736, BANCO DE LA REPÚBLICA.
  2. Ana María Iregui B. & Ligia Alba Melo B. & María Teresa Ramírez G., . "Downward Wage Rigidities and Other Firms’ Responses to an Economic Slowdown: Evidence from a Survey of Colombian Firms," Borradores de Economia 612, Banco de la Republica de Colombia.
  3. Kamil Galuščák & Mary Keeney & Daphne Nicolitsas & Frank Smets & Pawel Strzelecki & Matija Vodopivec, 2010. "The determination of wages of newly hired employees - survey evidence on internal versus external factors," Working Paper Series 1153, European Central Bank.
  4. Ana María Iregui & Ligia Alba Melo & María Teresa Ramírez, 2009. "Formación e incrementos de salarios en Colombia: Un estudio microeconómico a partir de una encuesta a nivel de firma," BORRADORES DE ECONOMIA 006286, BANCO DE LA REPÚBLICA.
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