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Efficiency wage and union effects in labor demand and wage structure in Mexico - An application of quantile analysis

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  • Maloney, William F.
  • Pontual Ribeiro, Eduardo

Abstract

Applying quantile analysis to detailed firm-level data from Mexico, the authors study determinants of demand and wages for two classes of labor. Unions appear to have a strong impact on how much unskilled labor is employed but not on wages. This suggests an extreme example of"monopoly union"behavior. The impact on productivity is, by definition, negative, but unions could also be said to be forcing firms to use"appropriate technology"(less capital and more workers), increasing the total amount of labor employed in the economy. The only impact on wages appears for the tenth (lowest) quantile of unskilled workers, suggesting that unions prevent workers from being paid too far below the median for their skill level. The authors identify significant efficiency wage effects where firms pay above market clearing to prevent labor turnover both in labor demand and in the wage equations. Since minimum wages are not binding and the union impact on wages is small, this suggests that whatever segmentation exists emerges endogenously and is not due to union - or government - induced distortions. The authors offer the first use of quantile analysis to analyze labor demand at the firm level, and one of the first uses of correct standard errors in two-stage least-squares quantile regression.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2131.

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Date of creation: 31 May 1999
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Handle: RePEc:wbk:wbrwps:2131

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Keywords: Labor Policies; Banks&Banking Reform; Public Health Promotion; Environmental Economics&Policies; Economic Theory&Research; Labor Management and Relations; Health Monitoring&Evaluation; Economic Theory&Research; Banks&Banking Reform; Environmental Economics&Policies;

References

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  1. Lam, David & Schoeni, Robert F, 1993. "Effects of Family Background on Earnings and Returns to Schooling: Evidence from Brazil," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 101(4), pages 710-40, August.
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  3. Wadhwani, S. & Wall, M., 1988. "A Direct Test Of The Efficiency Wage Model Using Uk Micro- Data," Papers, London School of Economics - Centre for Labour Economics 313, London School of Economics - Centre for Labour Economics.
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  12. Funkhouser, Edward, 1998. "The importance of firm wage differentials in explaining hourly earnings variation in the large-scale sector of Guatemala," Journal of Development Economics, Elsevier, Elsevier, vol. 55(1), pages 115-131, February.
  13. Bell, Linda A, 1997. "The Impact of Minimum Wages in Mexico and Colombia," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 15(3), pages S102-35, July.
  14. Panagides, Alexis & Patrinos, Harry Anthony & DEC, 1994. "Union - nonunion wage differentials in the developing world : a case study of Mexico," Policy Research Working Paper Series 1269, The World Bank.
  15. Harris, John R & Todaro, Michael P, 1970. "Migration, Unemployment & Development: A Two-Sector Analysis," American Economic Review, American Economic Association, American Economic Association, vol. 60(1), pages 126-42, March.
  16. Buchinsky, Moshe, 1995. "Estimating the asymptotic covariance matrix for quantile regression models a Monte Carlo study," Journal of Econometrics, Elsevier, Elsevier, vol. 68(2), pages 303-338, August.
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  18. Krueger, Alan B & Summers, Lawrence H, 1988. "Efficiency Wages and the Inter-industry Wage Structure," Econometrica, Econometric Society, Econometric Society, vol. 56(2), pages 259-93, March.
  19. Esfahani, Hadi S & Salehi-Isfahani, Djavad, 1989. "Effort Observability and Worker Productivity: Towards an Explanation of Economic Dualism," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 99(397), pages 818-36, September.
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Citations

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Cited by:
  1. Maloney, William F., 2004. "Informality Revisited," World Development, Elsevier, Elsevier, vol. 32(7), pages 1159-1178, July.
  2. Lopez-Acevedo, Gladys & Tinajero, Monica & Rubio, Marcela, 2005. "Mexico : human capital effects on wages and productivity," Policy Research Working Paper Series 3791, The World Bank.
  3. Kristensen, Nicolai & Verner, Dorte, 2005. "Labor market distortions in Cote d'Ivoire : analyses of employer-employee data from the manufacturing sector," Policy Research Working Paper Series 3771, The World Bank.
  4. Verner, Dorte, 2005. "Activities, employment, and wages in rural and semi-urban Mexico," Policy Research Working Paper Series 3561, The World Bank.
  5. Robertson, Raymond, 2004. "Relative prices and wage inequality: evidence from Mexico," Journal of International Economics, Elsevier, Elsevier, vol. 64(2), pages 387-409, December.
  6. Verner, Dorte, 2005. "Wage determination in Northeast Brazil," Policy Research Working Paper Series 3548, The World Bank.
  7. Blunch, Niels-Hugo & Verner, Dorthe, 2001. "Assymetries in Union Relative Wage Effects in Ghanian Manufacturing - An analysis Applying Quantile Regressions," CLS Working Papers, University of Aarhus, Aarhus School of Business, Centre for Labour Market and Social Research 01-7, University of Aarhus, Aarhus School of Business, Centre for Labour Market and Social Research.
  8. Arias, Omar, 2001. "Are men benefiting from the new economy : male economic marginalization in Argentina, Brazil, and Costa Rica," Policy Research Working Paper Series 2740, The World Bank.
  9. Maloney, William F., 1999. "Self-employment and labor turnover - cross-country evidence," Policy Research Working Paper Series 2102, The World Bank.
  10. Fajnzylber, Pablo & Maloney, William F., 2001. "How comparable are labor demand elasticities across countries?," Policy Research Working Paper Series 2658, The World Bank.
  11. Krebs, Tom & Maloney, William F., 1999. "Quitting and labor turnover : microeconomic evidence and macroeconomic consequences," Policy Research Working Paper Series 2068, The World Bank.
  12. Blunch, Niels-Hugo & Verner, Dorte, 2001. "Asymmetries in union relative wage effects in Ghanaian manufacturing - an analysis applying quantile regressions," Policy Research Working Paper Series 2570, The World Bank.

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