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Contractual Wages and the Wage Cushion under Different Bargaining Settings

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  • Ana Rute Cardoso

    (IZA Bonn, University of Minho, and CEPR)

  • Pedro Portugal

    (Banco de Portugal, Universidade NOVA de Lisboa, and IZA Bonn)

Abstract

How does a typically European bargaining system, with collective bargaining and national minimum wage, coexist with low unemployment and high wage flexibility? A unique data set on workers, firms, and collective bargaining contracts in Portugal is used to analyze the determinants of both the contractual wage and the wage cushion (difference between contractual and actual wages). The results indicate that the wage cushion stretches the returns to worker and firm attributes, whereas it shrinks the returns to union power. Therefore, firm-specific arrangements partly offset collective bargaining, granting firms certain freedom when setting wages. Contractual wages reflect trade unions' egalitarian policy.

Suggested Citation

  • Ana Rute Cardoso & Pedro Portugal, 2005. "Contractual Wages and the Wage Cushion under Different Bargaining Settings," Journal of Labor Economics, University of Chicago Press, vol. 23(4), pages 875-902, October.
    • Handle: RePEc:ucp:jlabec:v:23:y:2005:i:4:p:875-874
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