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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

  • Carneiro, Anabela

    ()
    (University of Porto)

  • Portugal, Pedro

    ()
    (Banco de Portugal)

Abstract

One of the predictions of the insider-outsider theory is that wages will be higher in sectors (firms) with high labor adjustment costs/high turnover costs. This prediction is tested empirically in this study, using an insider-outsider model and a longitudinal panel of large firms in Portugal. The results revealed that firms where insider workers appear to have more market power tend to pay higher wages. In particular, we found that the threat of dismissal acts to weaken insiders’ bargaining power and, consequently, to restrain their wage claims. Moreover, the results also showed that real wages in Portugal are downward rigid.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2102.

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Length: 24 pages
Date of creation: Apr 2006
Date of revision:
Publication status: published in: International Journal of Manpower, 2008, 29 (1), 30-47
Handle: RePEc:iza:izadps:dp2102

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Keywords: market power; wages; rent sharing; system GMM estimator; dismissal threat;

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Citations

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Cited by:
  1. Monteiro, Natália Pimenta & Portela, Miguel & Straume, Odd Rune, 2010. "Firm Ownership and Rent Sharing," IZA Discussion Papers 4909, Institute for the Study of Labor (IZA).
  2. 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.
  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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