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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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Handle: RePEc:nbr:nberwo:4044

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Cited by:
  1. Rupert, Peter & Stancanelli, Elena G F & Wasmer, Etienne, 2009. "Commuting, Wages and Bargaining Power," University of California at Santa Barbara, Economics Working Paper Series qt1wf7x3rg, Department of Economics, UC Santa Barbara.
  2. Kramarz, Francis, 2003. "Wages and International Trade," CEPR Discussion Papers 3936, C.E.P.R. Discussion Papers.
  3. Abowd, J.M. & Kramarz, F. & Margolis, D.N., 1995. "High-Wage Workers and High-Wage Firms," Cahiers de recherche 9503, Universite de Montreal, Departement de sciences economiques.
  4. 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.
  5. Manfred Königstein & Marie-Claire Villeval, 2005. "The Choice of the Agenda in Labor Negotiations: efficiency and behavioral considerations," Post-Print halshs-00180038, HAL.
  6. Ellen Brock & Sabien Dobbelaere, 2003. "Has International Trade Affected Workers?Bargaining Power?," LICOS Discussion Papers 13603, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
  7. Marcello M. Estevão, 2005. "Product Market Regulation and the Benefits of Wage Moderation," IMF Working Papers 05/191, International Monetary Fund.
  8. Estevão, Marcello & Nargis, Nigar, 2005. "Structural Labor Market Changes in France," IZA Discussion Papers 1621, Institute for the Study of Labor (IZA).

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