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Staggered Contracts and Unemployment During Recessions

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  • Effrosnyi Adamopoulou
  • Luis Diez-Catalan
  • Ernesto Villanueva

Abstract

This paper studies the impact of downward wage rigidity on wage and employment dynamics after the outbreak of major recessions in Spain. Downward wage rigidity stems from collective agreements, which set province-sector-skill specific minimum wage floors for all workers. By exploiting variation in the renewal of collective contracts, we find that agreements signed before the onset of recessions settle on higher nominal negotiated wage growth than agreements signed after. Leveraging Social Security data and the distribution of the worker-level bite of minimum wage floors, we document that the negotiated wage rigidity translated into higher wage growth mainly among workers with wages close to the floors. Consequently, these workers experienced a substantial and highly persistent increase in the probability of non-employment but only if they were covered by collective agreements of long duration. Our findings highlight the interplay between rigidity at different parts of the wage distribution and labor market institutions and identify conditions under which collective contract staggering and the inability to renegotiate may amplify aggregate shocks.

Suggested Citation

  • Effrosnyi Adamopoulou & Luis Diez-Catalan & Ernesto Villanueva, 2024. "Staggered Contracts and Unemployment During Recessions," CRC TR 224 Discussion Paper Series crctr224_2022_379v2, University of Bonn and University of Mannheim, Germany.
    • Handle: RePEc:bon:boncrc:crctr224_2022_379v2
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    2. Bujunoori, Raja Reddy & Mannil, Nithin & Tantri, Prasanna, 2024. "Does labor composition impact the transmission of monetary policy to output?," Journal of Development Economics, Elsevier, vol. 167(C).

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    More about this item

    Keywords

    Employment; Job Separation; Collective Bargaining; Wage Rigidity; Staggering; Social Security Data;
    All these keywords.

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General

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