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Wage-Setting Constraints and Firm Responses to Demand Shocks

Author

Listed:
  • Lukas Delgado-Prieto
  • Manudeep Bhuller
  • Linnea Lorentzen
  • Santiago Hermo

Abstract

This paper investigates how institutional wage-setting constraints, such as a national minimum wage or collectively bargained wages, affect firm responses to demand shocks. We develop a framework to interpret heterogeneous shock responses that depend on the constraints firms face, and provide empirical evidence on the relevance of these constraints in shaping firm behavior across three countries with different institutional settings: Portugal, Norway, and Colombia. We discuss the implications of our findings for conventional measures of employer wage-setting power and rent-sharing.

Suggested Citation

  • Lukas Delgado-Prieto & Manudeep Bhuller & Linnea Lorentzen & Santiago Hermo, 2026. "Wage-Setting Constraints and Firm Responses to Demand Shocks," RFBerlin Discussion Paper Series 26180, ROCKWOOL Foundation Berlin (RFBerlin).
    • Handle: RePEc:crm:wpaper:26180
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    Keywords

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    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

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