Does collective bargaining influence the way the size of the firm impacts wage dispersion? Spanish evidence

Purpose - This paper analyses the relationship between wage dispersion and firm size within a “two-tier” system of collective bargaining (firm bargaining and multi-employer bargaining levels). Collective bargaining has a decisive role in setting wages in Spain, and its regulation highly limits the possibility for smaller firms to negotiate their own collective agreement. Design/methodology/approach - Based on the Spanish Structure of Earnings Survey 2006, 2010 and 2014, the authors use variance decomposition in order to deeply analyse the effect of bargaining level on wage dispersion and compare the value of each decile of the distribution of wages for the purposes of identifying the quantitative differences in wage compression. Findings - In general, the outcomes positively linked firm size and firm bargaining to wage dispersion. However, if firm size is taken into account, the effect of firm bargaining is limited among small firm workers because this type of firm is not usually covered by firm bargaining. On the other hand, the time analysis allows observing a wage compression that follows different patterns depending on firm size, compressing the higher part of the distribution in case of small firms and the lower part in case of large firms. This should be explained by the fact that wage negotiation is dependent on firm size. Social implications - Firm size has determined firm adjustment strategies to face the recent economic crisis and allows to evaluate the impact that changes in collective bargaining can have on wage distribution Originality/value - There is no research that has tried to analyse the relationship between wage dispersion and firm size in a context where collective bargaining is essential to understand the wage structure. Normally, firm size plays a decisive role in wage policy given that the capacity of a company to negotiate an agreement is closely linked to its size.