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

Author

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  • Amodio, Francesco
  • Brancati, Emanuele
  • de Roux, Nicolás
  • Di Maio, Michele

Abstract

We measure firms’ wage-setting power in 16 countries across Latin America and the Caribbean. Exploiting variation in firms’ exposure to trade and exchange rates, we generate idiosyncratic 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 for every additional dollar they produce. Wage-setting power is significantly higher among firms in countries with lower union density, limited collective bargaining, and no unemployment protection. These findings underscore the role of labor market institutions in shaping firms’ wage-setting power and the distribution of the gains from trade.

Suggested Citation

  • Amodio, Francesco & Brancati, Emanuele & de Roux, Nicolás & Di Maio, Michele, 2025. "Labor Market Institutions and Wage-Setting Power: Evidence from Latin America and the Caribbean," CEPR Discussion Papers 20539, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:20539
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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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