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Wage-setting Decisions on Newly Hired Employees: Survey Evidence from Colombian Firms

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  • Ana María Iregui

    ()

  • Ligia Alba Melo B.

    ()

  • María Teresa Ramírez G.

    ()

Abstract

This paper uses a survey on wage formation that was applied to 1,305 Colombian firms to study wage-setting decisions with respect to newly hired employees. The Colombian case is interesting, since the country’s labour market performance, especially its unemployment rate and level of informality, differs not only from the developed countries, where studies of this type are concentrated, but also from most Latin American countries. The replies to the survey indicate wages for the newly hired are based mainly on a predefined wage structure. This may help to explain, in part, the presence of downward nominal wage rigidities in Colombia, since firms are unwilling to differentiate the pay of new hires from the wages of existing workers. Using logit models, we find that the probability of wages being bargained between the employee and the employer is less in the case of larger firms. On the contrary, the larger firms are more likely to determine wages according to a predefined wage structure. In general, the presence of flexible benefits and variable pay reduces the probability of wages being determined pursuant to a predefined wage structure. The results also indicate the worker’s educational level, experience and job duties are the main determinants of the wages of newly hired employees.

Suggested Citation

  • Ana María Iregui & Ligia Alba Melo B. & María Teresa Ramírez G., 2010. "Wage-setting Decisions on Newly Hired Employees: Survey Evidence from Colombian Firms," Borradores de Economia 632, Banco de la Republica de Colombia.
  • Handle: RePEc:bdr:borrec:632
    DOI: 10.32468/be.632
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    References listed on IDEAS

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    1. Ana María Iregui B. & Ligia Alba Melo B. & María Teresa Ranírez G., 2010. "Wage differentials across economic sectors in the Colombian formal labour market: evidence from a survey of firms," Borradores de Economia 629, Banco de la Republica de Colombia.
    2. Ana María Iregui B. & ligia Alba Melo Becerra & María Teresa Ramírez Giraldo, 2013. "RDownward Wage Rigidities and Other Firms Responses to an Economic Slowdown: Evidence from a Survey of Colombian Firms," Investigación Conjunta-Joint Research, in: Laura Inés D'Amato & Enrique López Enciso & María Teresa Ramírez Giraldo (ed.), Inflationary Dynamics, Persistence, and Prices and Wages Formation, edition 1, volume 1, chapter 15, pages 403-449, Centro de Estudios Monetarios Latinoamericanos, CEMLA.
    3. Galuscak, Kamil & Keeney, Mary & Nicolitsas, Daphne & Smets, Frank & Strzelecki, Pawel & Vodopivec, Matija, 2012. "The determination of wages of newly hired employees: Survey evidence on internal versus external factors," Labour Economics, Elsevier, vol. 19(5), pages 802-812.
    4. Ana María Iregui & Ligia Alba Melo & María Teresa Ramírez, 2009. "Formación e incrementos de salarios en Colombia: Un estudio microeconómico a partir de una encuesta a nivel de firma," Borradores de Economia 582, Banco de la Republica de Colombia.
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    Cited by:

    1. Ksenia V. Rozhkova & Sergey Yu. Roshchin & Sergey A. Solntsev, 2018. "Wage Adjustment Policies In Russian Firms," HSE Working papers WP BRP 205/EC/2018, National Research University Higher School of Economics.

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    More about this item

    Keywords

    Wage setting; newly hired employees; wage rigidities survey evidence; logit; Colombia;
    All these keywords.

    JEL classification:

    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General

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