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A Test of Negotiation and Incentive Compensation Models Using Longitudinal French Enterprise Data

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  • John M. Abowd
  • Francis Kramarz

Abstract

In this paper we model the determinants of firm level wages and employment explicitly allowing for firm and worker heterogeneity. Our firms have three types of workers (cadres, skilled and unskilled) and may explicitly choose from among three distinct contracting regimes (strong form efficiency, labor demand/right to manage, and incentive contracting). We apply the model to a representative sample of 1,097 French enterprises for the period 1978 to 1987. We find that firms with enterprise level agreements appear to implement incentive contracts. This is significant because in France a firm level agreement is voluntary. On the other hand, firms without accords appear to operate on their labor demand curves. That is, they make labor demand decisions using the sector level agreement as the relevant wage rate. Efficient contracts are dominated by the other two contractual possibilities. External wage rates, which we estimate for each group of workers within each firm, appear not to influence employment decisions in the manner predicted by efficient contracts regardless of the accord status of the firm.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4044.

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Date of creation: Apr 1992
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Publication status: published as van Ours, J.C., G.A. Pfann and G. Ridder (eds.) Labour Demand and Equilibrium Wage Formation Contributions to Economic Analysis. Amsterdam: NorthHolland, 1993.
Handle: RePEc:nbr:nberwo:4044

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Cited by:
  1. John M. ABOWD & Laurence ALLAIN, 1996. "Compensation Structure and Product Market Competition," Annales d'Economie et de Statistique, ENSAE, issue 41-42, pages 207-217.
  2. Estevão, Marcello & Nargis, Nigar, 2005. "Structural Labor Market Changes in France," IZA Discussion Papers 1621, Institute for the Study of Labor (IZA).
  3. Francis Kramarz, 2003. "Wages and International Trade," Working Papers 2003-27, Centre de Recherche en Economie et Statistique.
  4. John M. Abowd & Francis Kramarz & David N. Margolis, 1999. "High Wage Workers and High Wage Firms," Econometrica, Econometric Society, vol. 67(2), pages 251-334, March.
  5. Elena Stancanelli & Peter Rupert & Etienne Wasmer, 2009. "Commuting, Wages and Bargaining Power," Sciences Po publications 2009-02, Sciences Po.
  6. Marcello M. Estevão, 2005. "Product Market Regulation and the Benefits of Wage Moderation," IMF Working Papers 05/191, International Monetary Fund.
  7. Manfred Königstein & Marie-Claire Villeval, 2005. "The Choice of the Agenda in Labor Negotiations: efficiency and behavioral considerations," Post-Print halshs-00180038, HAL.

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