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The Effect of Firm-Level Contracts on the Structure of Wages: Evidence from Matched Employer-Employee Data


  • Card, David

    () (University of California, Berkeley)

  • de la Rica, Sara

    () (University of the Basque Country)


In Spain, as in several other European countries, sectoral bargaining agreements are automatically extended to cover all firms in an industry. Employers and employees can also negotiate firm-specific contracts. We use a large matched employer-employee data set to study the effects of firm-level contracting on the structure of wages. Employees covered by firm-specific contracts earn about 10 percent more than those covered by sectoral contracts. The estimated premium is about the same for men in different skill groups, but higher for more highly skilled women, suggesting that firm-level contracts raise wage inequality for women. At the establishment level, we compare average wages under firm-level and sectoral bargaining, controlling for the propensity to negotiate a firm-specific contract. Consistent with the worker-level models, we find that firm-specific contracting raises average wages, with a pattern of effects that tends to increase inequality relative to sectoral bargaining for women. Although we cannot decisively test between alternative explanations for the firm-level contracting premium, workers with firm-specific contracts have significantly longer job tenure, suggesting that the premium is at least partially a non-competitive phenomenon.

Suggested Citation

  • Card, David & de la Rica, Sara, 2004. "The Effect of Firm-Level Contracts on the Structure of Wages: Evidence from Matched Employer-Employee Data," IZA Discussion Papers 1421, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp1421

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    Cited by:

    1. Amuedo Dorantes, Catalina & De la Rica Goiricelaya, Sara, 2005. "The Impact of Gender Segregation on Male-Female Wage Differentials," DFAEII Working Papers 2005-16, University of the Basque Country - Department of Foundations of Economic Analysis II.
    2. Patrick Lünnemann & Ladislav Wintr, 2009. "Wages are flexible, aren?t they? evidence from monthly micro wage data," BCL working papers 39, Central Bank of Luxembourg.
    3. John T. Addison & Paulino Teixeira & Thomas Zwick, 2006. "The Impact of Works Councils on Wages," GEMF Working Papers 2006-08, GEMF, Faculty of Economics, University of Coimbra.
    4. Addison, John T. & Teixeira, Paulino & Zwick, Thomas, 2006. "Works Councils and the Anatomy of Wages," IZA Discussion Papers 2474, Institute for the Study of Labor (IZA).
    5. Mario Izquierdo & Aitor Lacuesta, 2006. "Wage inequality in Spain: recent developments," Working Papers 0615, Banco de España;Working Papers Homepage.
    6. Alcala, Francisco & Hernandez, Pedro J., 2005. "Firm characteristics, labor sorting, and wages," MPRA Paper 1226, University Library of Munich, Germany, revised 17 Nov 2006.

    More about this item


    wage inequality; labor contracts; bargaining;

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

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