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Labor Market Institutions and Wage-Setting Power: Evidence from Latin America and the Caribbean

Author

Listed:
  • Francesco Amodio

    (McGill University)

  • Emanuele Brancati

    (Sapienza University of Rome)

  • Nicolás de Roux

    (Universidad de los Andes)

  • Michele Di Maio

    (Sapienza University of Rome)

Abstract

We measure firms’ wage-setting power in 16 Latin American and Caribbean countries. Exploiting variation in firms’ exposure to trade and exchange rates, we generate shocks to labor demand to trace out firm-level labor supply curves and quantify labor market power. We estimate an inverse labor supply elasticity of 0.82, implying that workers receive 55 cents per additional dollar produced. Wage-setting power is significantly higher among firms in countries with lower union density, limited collective bargaining, and no unemployment protection. This underscores the role of labor market institutions in shaping firms’ wagesetting power and the distribution of the gains from trade.

Suggested Citation

  • Francesco Amodio & Emanuele Brancati & Nicolás de Roux & Michele Di Maio, 2025. "Labor Market Institutions and Wage-Setting Power: Evidence from Latin America and the Caribbean," Documentos CEDE 2025-26, Universidad de los Andes, Facultad de Economía, CEDE.
    • Handle: RePEc:col:000089:021499
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    File URL: https://repositorio.uniandes.edu.co/bitstreams/handle/1992/77106/dcede2025-26.pdf
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    Keywords

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    JEL classification:

    • 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
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean

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