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30,000 minimum wages: The economic effects of collective agreement extensions

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  • Pedro S. Martins

Abstract

Several countries extend collective bargaining agreements to entire sectors, therefore binding non-subscriber workers and employers. These extensions may address coordination issues but may also impose sector-specific minimum wages and other work conditions that are not appropriate for several workers and firms. In this paper, we analyse the impact of such extensions along several margins drawing on firm-level monthly data for Portugal, a country where extensions have been widespread until recently. We find that both formal employment and wage bills in the relevant sector fall, on average, by 2% - and by 25% more across small firms - over the four months after an extension is issued. These results are driven by both reduced hirings and increased firm closures. On the other hand, informal work, not subject to labour law or extensions, tends to increase. Our findings are robust to several checks, including a falsification exercise based on extensions that were announced but not implemented.

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Bibliographic Info

Paper provided by Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research in its series Working Papers with number 51.

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Date of creation: Jun 2014
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Handle: RePEc:cgs:wpaper:51

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Keywords: Collective agreements; Worker flows; Wage rigidity;

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  1. David Card & Francesco Devicienti & Agata Maida, 2010. "Rent-sharing, Holdup, and Wages: Evidence from Matched Panel Data," NBER Working Papers 16192, National Bureau of Economic Research, Inc.
  2. Boeri, Tito, 2012. "Setting the minimum wage," Labour Economics, Elsevier, Elsevier, vol. 19(3), pages 281-290.
  3. 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, MIT Press, vol. 108(4), pages 983-1014, November.
  4. John M. Abowd & Patrick Corbel & Francis Kramarz, 1996. "The Entry and Exit of Workers and the Growth of Employment: An Analysis of French Establishments," NBER Working Papers 5551, National Bureau of Economic Research, Inc.
  5. Ana Rute Cardoso & Pedro Portugal, 2005. "Contractual Wages and the Wage Cushion under Different Bargaining Settings," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 23(4), pages 875-902, October.
  6. Portugal, Pedro & Cardoso, Ana Rute, 2002. "Disentangling the Minimum Wage Puzzle: An Analysis of Worker Accessions and Separations," IZA Discussion Papers 544, Institute for the Study of Labor (IZA).
  7. Avouyi-Dovi, Sanvi & Fougère, Denis & Gautier, Erwan, 2011. "Wage Rigidity, Collective Bargaining and the Minimum Wage: Evidence from French Agreement Data," IZA Discussion Papers 5835, Institute for the Study of Labor (IZA).
  8. Daniel Dias & Carlos Robalo Marques & Fernando Martins, 2012. "Wage rigidity and employment adjustment at the firm level: evidence from survey data," Working Papers, Banco de Portugal, Economics and Research Department w201212, Banco de Portugal, Economics and Research Department.
  9. Justus Haucap & Uwe Pauly & Christian Wey, 2000. "Collective Wage Setting When Wages Are Generally Binding: An Antitrust Perspective," CIG Working Papers, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG) FS IV 00-01, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  10. David Neumark & William Wascher, 2006. "Minimum Wages and Employment: A Review of Evidence from the New Minimum Wage Research," NBER Working Papers 12663, National Bureau of Economic Research, Inc.
  11. Philip Ducaju & Erwan Gautier & Daphné Momferatou & Mélanie Ward-Warmedinge, 2008. "Institutional features of wage bargaining in 23 European countries, the US and Japan," Working Paper Research, National Bank of Belgium 154, National Bank of Belgium.
  12. Pedro S. Martins, 2008. "Rent Sharing Before and After the Wage Bill," Working Papers, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research 12, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research.
  13. Pedro S. Martins, 2008. "Dismissals for cause: The difference that just eight paragraphs can make," Working Papers, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research 24, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research.
  14. Pedro Portugal & Hugo Vilares, 2013. "Labor unions, union density and the union wage premium," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department, Banco de Portugal, Economics and Research Department.
  15. Pedro Portugal & Olivier Blanchard, 2001. "What Hides Behind an Unemployment Rate: Comparing Portuguese and U.S. Labor Markets," American Economic Review, American Economic Association, American Economic Association, vol. 91(1), pages 187-207, March.
  16. Pedro S. Martins, 2008. "Worker Churning and Firms’ Wage Policies," Working Papers, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research 13, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research.
  17. Pedro Martins & Andy Snell & Jonathan P. Thomas, 2010. "Downward Wage Rigidity in a Model of Equal Treatment Contracting," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 112(4), pages 841-863, December.
  18. O Blanchard & A Landier, 2002. "The Perverse Effects of Partial Labour Market Reform: fixed--Term Contracts in France," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 112(480), pages F214-F244, June.
  19. Pedro S. Martins & Gary Solon & Jonathan P. Thomas, 2012. "Measuring What Employers Do about Entry Wages over the Business Cycle: A New Approach," American Economic Journal: Macroeconomics, American Economic Association, American Economic Association, vol. 4(4), pages 36-55, October.
  20. Cabral, Luís M B & Mata, José, 2001. "On the Evolution of the Firm Size Distribution: Facts and Theory," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3045, C.E.P.R. Discussion Papers.
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Cited by:
  1. Pedro Portugal & Hugo Vilares, 2013. "Labor unions, union density and the union wage premium," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department, Banco de Portugal, Economics and Research Department.
  2. Addison, John T. & Portugal, Pedro & Varejão, José, 2014. "Labour Demand Research: Towards a Better Match between Better Theory and Better Data," IZA Discussion Papers 8125, Institute for the Study of Labor (IZA).

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