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Market Power, Dismissal Threat and Rent Sharing: The Role of Insider and Outsider Forces in Wage Bargaining

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  • Carneiro, Anabela

    () (University of Porto)

  • Portugal, Pedro

    () (Banco de Portugal)

Abstract

One of the predictions of the insider-outsider theory is that wages will be higher in sectors (firms) with high labor adjustment costs/high turnover costs. This prediction is tested empirically in this study, using an insider-outsider model and a longitudinal panel of large firms in Portugal. The results revealed that firms where insider workers appear to have more market power tend to pay higher wages. In particular, we found that the threat of dismissal acts to weaken insiders’ bargaining power and, consequently, to restrain their wage claims. Moreover, the results also showed that real wages in Portugal are downward rigid.

Suggested Citation

  • Carneiro, Anabela & Portugal, Pedro, 2006. "Market Power, Dismissal Threat and Rent Sharing: The Role of Insider and Outsider Forces in Wage Bargaining," IZA Discussion Papers 2102, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp2102
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    References listed on IDEAS

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    Cited by:

    1. Philip Du Caju & Catherine Fuss & Ladislav Wintr, 2012. "Downward Wage Regidity for Different Workers and Firms," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 55(1), pages 5-32.
    2. Sónia Torres & Pedro Portugal & John T. Addison & Paulo Guimarães, 2010. "The Sources of Wage Variation: An Analysis Using Matched Employer-Employee Data," Working Papers w201025, Banco de Portugal, Economics and Research Department.
    3. Catherine Fuss & Ladislav Wintr, 2012. "Rigid Wages and Flexible Employment ?Contrasting Responses to Firm-Level and Sector-Level Productivity Developments," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 55(3), pages 241-268.
    4. Natália Monteiro & Miguel Portela & Odd Straume, 2011. "Firm Ownership and Rent Sharing," Journal of Labor Research, Springer, vol. 32(3), pages 210-236, September.
    5. Pedro Portugal, 2006. "Wage Setting in the Portuguese Labor Market: A Microeconomic Approach," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.

    More about this item

    Keywords

    market power; wages; rent sharing; system GMM estimator; dismissal threat;

    JEL classification:

    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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