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Bargained Wages, Wage Drift and the Design of the Wage-Setting System

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Author Info
Cardoso, Ana Rute
Portugal, Pedro

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Abstract

This Paper aims at answering the question: how does a typically 'European' bargaining system – with collective bargaining, extension mechanisms and national minimum wage – coexist with low unemployment rate and high wage flexibility? A unique dataset on workers, firms and collective bargaining contracts in the Portuguese economy is used to analyse the determinants of both the bargained wage and the wage drift. Results indicate that wage drift stretches the returns to every worker and firm attribute, whereas it shrinks the returns to union bargaining power. Therefore, firm-specific arrangements, in the form of wage drift, partly offset collective bargaining, granting firms a high degree of freedom when setting wages. Union bargaining power raises the overall wage level, but lowers the returns on worker attributes, an outcome of the egalitarian policy pursued.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4405.

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Date of creation: Jun 2004
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Handle: RePEc:cpr:ceprdp:4405

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Related research
Keywords: employer coordination; union bargaining power; wage distribution; wage drift;

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Find related papers by JEL classification:
D21 - Microeconomics - - Production and Organizations - - - Firm Behavior
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Christofides, Louis N & Oswald, Andrew J, 1992. "Real Wage Determination and Rent-Sharing in Collective Bargaining Agreements," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 985-1002, August. [Downloadable!] (restricted)
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  2. Hibbs, Douglas Jr. & Locking, Hakan, 1996. "Wage compression, wage drift and wage inflation in Sweden," Labour Economics, Elsevier, vol. 3(2), pages 109-141, September. [Downloadable!] (restricted)
  3. Richard B. Freeman, 1983. "Longitudinal Analyses of the Effects of Tade Unions," NBER Working Papers 1207, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Richard B. Freeman, 1980. "Unionism and the dispersion of wages," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 34(1), pages 3-23, October.
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  5. Booth, Alison L, 1984. "A Public Choice Model of Trade Union Behaviour and Membership," Economic Journal, Royal Economic Society, vol. 94(376), pages 883-98, December. [Downloadable!] (restricted)
  6. David Fairris, 2003. "Unions and wage inequality in Mexico," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 56(3), pages 481-497, April. [Downloadable!] (restricted)
  7. Ordine, Patrizia, 1995. "Wage drift and minimum contractual wage: Theoretical interrelationship and empirical evidence for Italy," Labour Economics, Elsevier, vol. 2(4), pages 335-357, December. [Downloadable!] (restricted)
  8. Agell, Jonas & Lommerud, Kjell Erik, 1992. "Union Egalitarianism as Income Insurance," Economica, London School of Economics and Political Science, vol. 59(235), pages 295-310, August. [Downloadable!] (restricted)
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  9. Card, David, 1996. "The Effect of Unions on the Structure of Wages: A Longitudinal Analysis," Econometrica, Econometric Society, vol. 64(4), pages 957-79, July. [Downloadable!] (restricted)
  10. Nickell, Stephen, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer. [Downloadable!] (restricted)
  11. Lemieux, Thomas, 1998. "Estimating the Effects of Unions on Wage Inequality in a Panel Data Model with Comparative Advantage and Nonrandom Selection," Journal of Labor Economics, University of Chicago Press, vol. 16(2), pages 261-91, April. [Downloadable!] (restricted)
  12. Hartog, Joop & Leuven, Edwin & Teulings, Coen, 2002. "Wages and the bargaining regime in a corporatist setting: the Netherlands," European Journal of Political Economy, Elsevier, vol. 18(2), pages 317-331, June. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Robert Plasman & Michael Rusinek & François Rycx, 2006. "Wages and the Bargaining Regime under Multi-level Bargaining: Belgium, Denmark and Spain," Working Papers DULBEA 06-01.RS, Université libre de Bruxelles, Department of Applied Economics (DULBEA). [Downloadable!]
    Other versions:
  2. Hipólito J. Simón & Raúl Ramos & Esteban Sanromá, 2006. "Collective bargaining and regional wage differences in Spain: an empirical analysis," Applied Economics, Taylor and Francis Journals, vol. 38(15), pages 1749-1760, August. [Downloadable!] (restricted)
    Other versions:
  3. Cardoso, Ana Rute, 2004. "Wage Mobility: Do Institutions Make a Difference? A Replication Study Comparing Portugal and the UK," IZA Discussion Papers 1086, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  4. Gürtzgen, Nicole, 2005. "Rent-sharing : Does the Bargaining Regime Make a Difference? : Theory and Empirical Evidence," ZEW Discussion Papers 05-15, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
  5. Bayo-Moriones, Alberto & Galdón-Sánchez, José Enrique & Martinez-de Moretin, Sara, 2008. "What Are the Factors Behind Pay Settlements? Evidence from Spanish and British Data," IZA Discussion Papers 3401, Institute for the Study of Labor (IZA). [Downloadable!]
  6. Gesine Stephan & Knut Gerlach, 2005. "Wage settlements and wage setting: results from a multi-level model," Applied Economics, Taylor and Francis Journals, vol. 37(20), pages 2297-2306, November. [Downloadable!] (restricted)
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