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

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  • Cardoso, Ana Rute

    ()
    (IAE Barcelona (CSIC))

  • Portugal, Pedro

    ()
    (Banco de Portugal)

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 data set on workers, firms and collective bargaining contracts in the Portuguese economy is used to analyze 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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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 914.

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Length: 28 pages
Date of creation: Oct 2003
Date of revision:
Publication status: published as 'Contractual wages and the wage cushion under different bargaining settings' in: Journal of Labor Economics, 2005, 23 (4), 875-902
Handle: RePEc:iza:izadps:dp914

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

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  1. Ordine, Patrizia, 1995. "Wage drift and minimum contractual wage: Theoretical interrelationship and empirical evidence for Italy," Labour Economics, Elsevier, Elsevier, vol. 2(4), pages 335-357, December.
  2. Freeman, Richard Barry, 1984. "Longitudinal Analyses of the Effects of Trade Unions," Scholarly Articles 4631951, Harvard University Department of Economics.
  3. Richard B. Freeman, 1978. "Unionism and the Dispersion of Wages," NBER Working Papers 0248, National Bureau of Economic Research, Inc.
  4. Joop Hartog & Edwin Leuven & Coen N. Teulings, 2000. "Wages and the Bargaining Regime in a Corporist Setting: The Netherlands," Tinbergen Institute Discussion Papers 00-013/3, Tinbergen Institute.
  5. Christofides, Louis N & Oswald, Andrew J, 1992. "Real Wage Determination and Rent-Sharing in Collective Bargaining Agreements," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 107(3), pages 985-1002, August.
  6. Card, David, 1996. "The Effect of Unions on the Structure of Wages: A Longitudinal Analysis," Econometrica, Econometric Society, Econometric Society, vol. 64(4), pages 957-79, July.
  7. Agell, J. & Lommerud, K.E., 1990. "Union Egalitarianism As Income Insurance," Papers, Uppsala - Working Paper Series 1990a, Uppsala - Working Paper Series.
  8. David Fairris, 2003. "Unions and wage inequality in Mexico," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 56(3), pages 481-497, April.
  9. Hibbs, Douglas Jr. & Locking, Hakan, 1996. "Wage compression, wage drift and wage inflation in Sweden," Labour Economics, Elsevier, Elsevier, vol. 3(2), pages 109-141, September.
  10. 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, University of Chicago Press, vol. 16(2), pages 261-91, April.
  11. Stephen Nickell, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 11(3), pages 55-74, Summer.
  12. Booth, Alison L, 1984. "A Public Choice Model of Trade Union Behaviour and Membership," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 94(376), pages 883-98, December.
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Cited by:
  1. Robert Plasman & Michael Rusinek & François Rycx, 2007. "Wages and the bargaining regime under multi-level bargaining: Belgium, Denmark and Spain," ULB Institutional Repository 2013/9777, ULB -- Universite Libre de Bruxelles.
  2. Hipolito Simon & Raul Ramos & Esteban Sanroma, 2006. "Collective bargaining and regional wage differences in Spain: an empirical analysis," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 38(15), pages 1749-1760.
  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).
  4. Gürtzgen, Nicole, 2005. "Rent-sharing : Does the Bargaining Regime Make a Difference? Theory and Empirical Evidence," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 05-15, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  5. Gesine Stephan & Knut Gerlach, 2005. "Wage settlements and wage setting: results from a multi-level model," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 37(20), pages 2297-2306.
  6. Vera A. Adamchik & Josef C. Brada & Arthur E. King, 2009. "Are Transition Economy Workers Underpaid?," Working Papers, Institut für Ost- und Südosteuropaforschung (Institute for East and South-East European Studies) 278, Institut für Ost- und Südosteuropaforschung (Institute for East and South-East European Studies).
  7. Bayo-Moriones, Alberto & Galdon-Sanchez, Jose Enrique & Martinez-de-Morentin, 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).

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