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Firm heterogeneity and wages in unionised labour markets: Theory and evidence

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Abstract

In many countries wages are set in two stages, where industry-level collective bargaining is followed by firm-specific arrangements determining actual paid wages as a mark-up on the industry wage floor. What explains the wage set in each of these stages? In this paper we show that both the industry wage floor and the average wage cushion are systematically associated with the degree of firm heterogeneity in the industry: The former (latter) is negatively (positively) associated with the productivity spread. Furthermore, since the response of the wage floor dominates that of the wage cushion, workers in more heterogeneous industries tend to get lower actual paid wages. These conclusions are reached in a model of Cournot oligopoly with firm productivity heterogeneity and a two-tiered wage setting system. They are then confirmed by administrative data covering virtually all workers, firms and collective bargaining agreements of the Portuguese private sector for the period 1991-2000.

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  • Paulo Bastos & Natália P. Monteiro & Odd Rune Straume, 2008. "Firm heterogeneity and wages in unionised labour markets: Theory and evidence," NIPE Working Papers 14/2008, NIPE - Universidade do Minho.
  • Handle: RePEc:nip:nipewp:14/2008
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    Cited by:

    1. Florian Baumann & Tobias Brändle, 2015. "We Want them all Covered! Collective Bargaining and Firm Heterogeneity. Theory and Evidence from Germany," IAW Discussion Papers 114, Institut für Angewandte Wirtschaftsforschung (IAW).
    2. Ben Ferrett & Vasileios Zikos, 2013. "Wage-Setting Institutions and R&D Collaboration Networks," Australian Economic Papers, Wiley Blackwell, vol. 52(2), pages 61-78, June.
    3. Paulo Bastos & Natália P. Monteiro, 2011. "Managers and Wage Policies," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 20(4), pages 957-984, December.
    4. Njikam, Ousmanou, 2016. "Trade liberalization, labor market regulations and labor demand in Cameroon," International Review of Economics & Finance, Elsevier, vol. 43(C), pages 525-541.
    5. David Card & Ana Rute Cardoso, 2021. "Wage Flexibility Under Sectoral Bargaining," NBER Working Papers 28695, National Bureau of Economic Research, Inc.
    6. Juan Francisco Canal Domínguez & César Rodríguez Gutiérrez, 2016. "Collective bargaining, wage dispersion and the economic cycle: Spanish evidence," The Economic and Labour Relations Review, , vol. 27(4), pages 471-489, December.
    7. Paulo Bastos & Joana Silva & Rafael Proença, 2016. "Exports and Job Training," Review of International Economics, Wiley Blackwell, vol. 24(4), pages 737-756, September.
    8. Sven Jung & Claus Schnabel, 2011. "Paying More than Necessary? The Wage Cushion in Germany," LABOUR, CEIS, vol. 25(2), pages 182-197, June.
    9. Maritza López-Novella & Salimata Sissoko, 2009. "Working Paper 12-09 - Salaires et négociation collective en Belgique : une analyse microéconomique en panel," Working Papers 0912, Federal Planning Bureau, Belgium.

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    More about this item

    Keywords

    Wage determination; Trade unions; Firm heterogeneity;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • 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
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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