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Bargained Wages, Wage Drift and the Design of the Wage Setting System

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  • Pedro Portugal
  • Ana Rute Cardoso

Abstract

This paper aims at answering the question: How does a typically European bargaining system - with collective bargaining, extension mechanisms and national minimum wage - coexist with low unemployment rate and high wage flexibility? A unique data set on workers, firms and collective bargaining contracts in the Portuguese economy is used to analyze the determinants of both the bargained wage and the wage drift. Results indicate that wage drift stretches the returns to every worker and firm attribute, whereas it shrinks the returns to union bargaining power. Therefore, firm-specific arrangements, in the form of wage drift, partly offset collective bargaining, granting firms a high degree of freedom when setting wages. Union bargaining power raises the overall wage level, but lowers the returns on worker attributes, an outcome of the egalitarian policy pursued.

Suggested Citation

  • Pedro Portugal & Ana Rute Cardoso, 2003. "Bargained Wages, Wage Drift and the Design of the Wage Setting System," Working Papers w200318, Banco de Portugal, Economics and Research Department.
    • Handle: RePEc:ptu:wpaper:w200318
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    References listed on IDEAS

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    Cited by:

    1. Hipolito Simon & Raul Ramos & Esteban Sanroma, 2006. "Collective bargaining and regional wage differences in Spain: an empirical analysis," Applied Economics, Taylor & Francis Journals, vol. 38(15), pages 1749-1760.
    2. Robert Plasman & Michael Rusinek & François Rycx, 2006. "Wages and the bargaining regime under multi-level bargaining: Belgium, Denmark and Spain," DULBEA Working Papers 06-01.RS., ULB -- Universite Libre de Bruxelles.
    3. Andrea Garnero & François Rycx & Isabelle Terraz, 2020. "Productivity and Wage Effects of Firm‐Level Collective Agreements: Evidence from Belgian Linked Panel Data," British Journal of Industrial Relations, London School of Economics, vol. 58(4), pages 936-972, December.
    4. Bayo-Moriones, Alberto & Galdon-Sanchez, Jose Enrique & Martinez-de-Morentin, Sara, 2008. "What Are the Factors Behind Pay Settlements? Evidence from Spanish and British Data," IZA Discussion Papers 3401, Institute of Labor Economics (IZA).
    5. Cardoso, Ana Rute, 2006. "Wage mobility: do institutions make a difference?," Labour Economics, Elsevier, vol. 13(3), pages 387-404, June.
    6. Vera A. Adamchik & Josef C. Brada & Arthur E. King, 2009. "Are Transition Economy Workers Underpaid?," Working Papers 278, Leibniz Institut für Ost- und Südosteuropaforschung (Institute for East and Southeast European Studies).
    7. Hipolito Simon & Raul Ramos & Esteban Sanroma, 2006. "Collective bargaining and regional wage differences in Spain: an empirical analysis," Applied Economics, Taylor & Francis Journals, vol. 38(15), pages 1749-1760.
    8. Gesine Stephan & Knut Gerlach, 2005. "Wage settlements and wage setting: results from a multi-level model," Applied Economics, Taylor & Francis Journals, vol. 37(20), pages 2297-2306.
    9. Pablo Blanchard & Paula Carrasco & Rodrigo Ceni & Cecilia Parada & Sofía Santín, 2021. "Distributive and displacement effects of a coordinated wage bargaining scheme," Documentos de Trabajo (working papers) 21-26, Instituto de Economía - IECON.
    10. Cardoso, Ana, 2004. "Wage Mobility: Do Institutions Make a Difference? A Replication Study Comparing Portugal and the UK," CEPR Discussion Papers 4355, C.E.P.R. Discussion Papers.
    11. Gürtzgen, Nicole, 2005. "Rent-sharing : Does the Bargaining Regime Make a Difference? Theory and Empirical Evidence," ZEW Discussion Papers 05-15, ZEW - Leibniz Centre for European Economic Research.
    12. Carlo Dell’Aringa & Laura Pagani, 2007. "Collective Bargaining and Wage Dispersion in Europe," British Journal of Industrial Relations, London School of Economics, vol. 45(1), pages 29-54, March.

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    More about this item

    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

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