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

  • Anabela Carneiro
  • Pedro Portugal

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, applying an insider-outsider model to a longitudinal panel of large firms in Portugal. The results revealed that firms where insider workers appear to have more bargaining 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 are downward rigid in the Portuguese labor market.

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Paper provided by Banco de Portugal, Economics and Research Department in its series Working Papers with number w200610.

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Date of creation: 2006
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Handle: RePEc:ptu:wpaper:w200610
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  1. David G. Blanchflower & Andrew J. Oswald & Mario D. Garrett, 1989. "Insider Power in Wage Determination," NBER Working Papers 3179, National Bureau of Economic Research, Inc.
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  9. John M. Abowd & Thomas Lemieux, 1991. "The Effects of Product Market Competition on Collective Bargaining Agreements: The Case of Foreign Competition in Canada," NBER Working Papers 3808, National Bureau of Economic Research, Inc.
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  12. Pedro Portugal & Olivier Blanchard, 2001. "What Hides Behind an Unemployment Rate: Comparing Portuguese and U.S. Labor Markets," American Economic Review, American Economic Association, vol. 91(1), pages 187-207, March.
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  17. Wulfsberg, F., 1995. "An Application of Wage Bargaining Models to Norwegian Panel Data," Memorandum 29/1995, Oslo University, Department of Economics.
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  19. Richard Blundell & Steve Bond & Frank Windmeijer, 2000. "Estimation in dynamic panel data models: improving on the performance of the standard GMM estimator," IFS Working Papers W00/12, Institute for Fiscal Studies.
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  28. repec:iza:izadps:dp534 is not listed on IDEAS
  29. Holzer, Harry J & Montgomery, Edward B, 1993. "Asymmetries and Rigidities in Wage Adjustments by Firms," The Review of Economics and Statistics, MIT Press, vol. 75(3), pages 397-408, August.
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