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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 () (Universidade do Porto and CETE)
Pedro Portugal () (Banco de Portugal, Universidade Nova de Lisboa and IZA Bonn)

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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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Publisher 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
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Handle: RePEc:iza:izadps:dp2102

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

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Find related papers by JEL classification:
J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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    Other versions:
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    Other versions:
  6. 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. [Downloadable!] (restricted)
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  21. Nickell, Stephen & Kong, Paul, 1992. "An investigation into the power of insiders in wage determination," European Economic Review, Elsevier, vol. 36(8), pages 1573-1599, December. [Downloadable!] (restricted)
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    Other versions:
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