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Market power, dismissal threat, and rent sharing: The role of insider and outsider forces in wage bargaining

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  • Anabela Carneiro
  • Pedro Portugal

Abstract

Purpose - The purpose of this study is to investigate to what extent the existence of high labor adjustment costs has some influence on the process of wage negotiation. In particular, it aims to analyse if the risk of being laid off has any impact on insiders' bargaining power and, consequently, on their wage claims. Design/methodology/approach - A collective bargaining model that closely follows those developed by Nickell Findings - The results reveal that firms where insider workers appear to have more bargaining power tend to pay higher wages. In particular, we found that the threat of dismissal tends to weaken insiders' bargaining power and, consequently, to depress wages. Research limitations/implications - In future research an attempt should be made to measure directly the labor turnover costs. Originality/value - This paper presents robust empirical evidence using micro-data for individual firms that support one of the predictions of the insider-outsider theory that wages will be higher in sectors (firms) with high labor turnover costs.

Suggested Citation

  • Anabela Carneiro & Pedro Portugal, 2008. "Market power, dismissal threat, and rent sharing: The role of insider and outsider forces in wage bargaining," International Journal of Manpower, Emerald Group Publishing, vol. 29(1), pages 30-47, March.
  • Handle: RePEc:eme:ijmpps:v:29:y:2008:i:1:p:30-47
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    Cited by:

    1. Philip Du Caju & Catherine Fuss & Ladislav Wintr, 2012. "Downward Wage Regidity for Different Workers and Firms," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 55(1), pages 5-32.
    2. Paulo Guimarães & Pedro Portugal & Sónia Torres & John T. Addison, 2010. "The Sources of Wage Variation: An Analysis Using Matched Employer-Employee Data," Working Papers w201025, Banco de Portugal, Economics and Research Department.
    3. Catherine Fuss & Ladislav Wintr, 2012. "Rigid Wages and Flexible Employment ?Contrasting Responses to Firm-Level and Sector-Level Productivity Developments," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 55(3), pages 241-268.
    4. Natália Monteiro & Miguel Portela & Odd Straume, 2011. "Firm Ownership and Rent Sharing," Journal of Labor Research, Springer, vol. 32(3), pages 210-236, September.
    5. Pedro Portugal, 2006. "Wage Setting in the Portuguese Labor Market: A Microeconomic Approach," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.

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    More about this item

    Keywords

    Pay bargaining; Market forces; Dismissal; Rents; Portugal;
    All these keywords.

    JEL classification:

    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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