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Firm heterogeneity and wages in unionised labour markets: Theory and evidence

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Author Info
Paulo Bastos () (ECFIN, European Commission)
Natália P. Monteiro () (Universidade do Minho - NIPE)
Odd Rune Straume () (Universidade do Minho - NIPE and University of Bergen (Health Economics Bergen, Department of Economics), Norway)

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Abstract

In many countries wages are set in two stages, where industry-level collective bargaining is followed by firm-specific arrangements determining actual paid wages as a mark-up on the industry wage floor. What explains the wage set in each of these stages? In this paper we show that both the industry wage floor and the average wage cushion are systematically associated with the degree of firm heterogeneity in the industry: The former (latter) is negatively (positively) associated with the productivity spread. Furthermore, since the response of the wage floor dominates that of the wage cushion, workers in more heterogeneous industries tend to get lower actual paid wages. These conclusions are reached in a model of Cournot oligopoly with firm productivity heterogeneity and a two-tiered wage setting system. They are then confirmed by administrative data covering virtually all workers, firms and collective bargaining agreements of the Portuguese private sector for the period 1991-2000.

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Paper provided by NIPE - Universidade do Minho in its series NIPE Working Papers with number 14/2008.

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Date of creation: 2008
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Handle: RePEc:nip:nipewp:14/2008

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Postal: Núcleo de Investigação em Políticas Económicas, Escola de Economia e Gestão, Universidade do Minho, P-4710-057 Braga, Portugal
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Related research
Keywords: Wage determination; Trade unions; Firm heterogeneity;

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Find related papers by JEL classification:
D21 - Microeconomics - - Production and Organizations - - - Firm Behavior
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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    Other versions:
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    Other versions:
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  1. Jung, Sven & Schnabel, Claus, 2009. "Paying More than Necessary? The Wage Cushion in Germany," IZA Discussion Papers 4278, Institute for the Study of Labor (IZA). [Downloadable!]
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