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How are Wages Determined? A Quasi-Experimental Test of Wage Determination Theories

Author

Listed:
  • Marcelo Carvalho

    (Vancouver School of Economics, UBC, Canada)

  • Joao Galindo da Fonseca

    (University of Montreal, Canada; Rimini Centre for Economic Analysis)

  • Rogerio Santarrosa

    (INSPER Institute of Education and Research, Brasil)

Abstract

We test whether firm-specific demand shocks impact wages, and disentangle predictions coming from wage bargaining and wage posting. We use a unique institutional feature of public procurement auctions in Brazil: the moment in which the auction ends is random. For close auctions, winner and runner-up are as good as randomly assigned. In addition, contract value is higher for auctions that (randomly) end earlier. Winning a contract increases wages. We disentangle the effect on wages that comes from changes in firm size (wage posting) and the part that comes from changes in contract value (bargaining). We find evidence of bargaining.

Suggested Citation

  • Marcelo Carvalho & Joao Galindo da Fonseca & Rogerio Santarrosa, 2023. "How are Wages Determined? A Quasi-Experimental Test of Wage Determination Theories," Working Paper series 23-08, Rimini Centre for Economic Analysis.
    • Handle: RePEc:rim:rimwps:23-08
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    References listed on IDEAS

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    1. Centoni, Marco & Cubadda, Gianluca, 2003. "Measuring the business cycle effects of permanent and transitory shocks in cointegrated time series," Economics Letters, Elsevier, vol. 80(1), pages 45-51, July.
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    Cited by:

    1. Jochmann Markus & Koop Gary, 2015. "Regime-switching cointegration," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 19(1), pages 35-48, February.
    2. Xiaojie Xu, 2015. "Cointegration among regional corn cash prices," Economics Bulletin, AccessEcon, vol. 35(4), pages 2581-2594.

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    More about this item

    Keywords

    wage-setting; bargaining; wage posting; rent-sharing; demand shocks;
    All these keywords.

    JEL classification:

    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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