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30,000 Minimum Wages: The Economic Effects of Collective Bargaining Extensions

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  • Pedro S. Martins

Abstract

Several countries extend collective bargaining agreements to entire sectors, therefore binding non-subscriber workers and employers. These extensions may address coordination issues but may also distort competition by imposing sector-specifc minimum wages and other work conditions that are not appropriate for many firms. In this paper, we analyse the impact of such extensions along several margins drawing on firm-level monthly data for Portugal, a country where extensions have been widespread until recently. Drawing on the scattered timing of the extensions, we find that both formal employment and wage bills in the relevant sector fall, on average, by 2% - and by 25% more across small firms - over the four months after an extension is issued. These results are driven by both reduced hirings and increased firm closures. On the other hand, informal work, not subject to labour law or extensions, tends to increase. Our findings are robust to several checks, including a falsification exercise based on extensions that were announced but not implemented. JEL codes: J52, K31, J23

Suggested Citation

  • Pedro S. Martins, 2014. "30,000 Minimum Wages: The Economic Effects of Collective Bargaining Extensions," FEUNL Working Paper Series wp589, Universidade Nova de Lisboa, Faculdade de Economia.
  • Handle: RePEc:unl:unlfep:wp589
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    References listed on IDEAS

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    1. Haucap, Justus & Pauly, Uwe & Wey, Christian, 2001. "Collective wage setting when wages are generally binding An antitrust perspective," International Review of Law and Economics, Elsevier, vol. 21(3), pages 287-307, September.
    2. Pedro Martins, 2009. "Rent sharing before and after the wage bill," Applied Economics, Taylor & Francis Journals, vol. 41(17), pages 2133-2151.
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    7. Pedro S. Martins, 2009. "Dismissals for Cause: The Difference That Just Eight Paragraphs Can Make," Journal of Labor Economics, University of Chicago Press, vol. 27(2), pages 257-279, April.
    8. Luís M B Cabral & José Mata, 2003. "On the Evolution of the Firm Size Distribution: Facts and Theory," American Economic Review, American Economic Association, vol. 93(4), pages 1075-1090, September.
    9. Dias, Daniel A. & Marques, Carlos Robalo & Martins, Fernando, 2013. "Wage rigidity and employment adjustment at the firm level: Evidence from survey data," Labour Economics, Elsevier, vol. 23(C), pages 40-49.
    10. Pedro Portugal & Ana Rute Cardoso, 2006. "Disentangling the Minimum Wage Puzzle: An Analysis of Worker Accessions and Separations," Journal of the European Economic Association, MIT Press, vol. 4(5), pages 988-1013, September.
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    12. Neumark, David & Salas, J.M. Ian & Wascher, William, 2013. "Revisiting the Minimum Wage-Employment Debate: Throwing Out the Baby with the Bathwater?," IZA Discussion Papers 7166, Institute for the Study of Labor (IZA).
    13. Pedro S. Martins, 2008. "Worker churning and firms' wage policies," International Journal of Manpower, Emerald Group Publishing, vol. 29(1), pages 48-63, March.
    14. John M. Abowd & Patrick Corbel & Francis Kramarz, 1999. "The Entry And Exit Of Workers And The Growth Of Employment: An Analysis Of French Establishments," The Review of Economics and Statistics, MIT Press, vol. 81(2), pages 170-187, May.
    15. Pedro S. Martins & Gary Solon & Jonathan P. Thomas, 2012. "Measuring What Employers Do about Entry Wages over the Business Cycle: A New Approach," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(4), pages 36-55, October.
    16. Boeri, Tito, 2012. "Setting the minimum wage," Labour Economics, Elsevier, vol. 19(3), pages 281-290.
    17. Ana Rute Cardoso & Pedro Portugal, 2005. "Contractual Wages and the Wage Cushion under Different Bargaining Settings," Journal of Labor Economics, University of Chicago Press, vol. 23(4), pages 875-902, October.
    18. Sanvi Avouyi-Dovi & Denis Fougère & Erwan Gautier, 2013. "Wage Rigidity, Collective Bargaining, and the Minimum Wage: Evidence from French Agreement Data," The Review of Economics and Statistics, MIT Press, vol. 95(4), pages 1337-1351, October.
    19. Pedro Martins & Andy Snell & Jonathan P. Thomas, 2010. "Downward Wage Rigidity in a Model of Equal Treatment Contracting," Scandinavian Journal of Economics, Wiley Blackwell, vol. 112(4), pages 841-863, December.
    20. John A. Abowd & Thomas Lemieux, 1993. "The Effects of Product Market Competition on Collective Bargaining Agreements: The Case of Foreign Competition in Canada," The Quarterly Journal of Economics, Oxford University Press, vol. 108(4), pages 983-1014.
    21. Hugo Vilares & Pedro Portugal, 2013. "Labor unions, union density and the union wage premium," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.
    22. Jeremy R. Magruder, 2012. "High Unemployment Yet Few Small Firms: The Role of Centralized Bargaining in South Africa," American Economic Journal: Applied Economics, American Economic Association, vol. 4(3), pages 138-166, July.
    23. Murtin, Fabrice & de Serres, Alain & Hijzen, Alexander, 2014. "Unemployment and the coverage extension of collective wage agreements," European Economic Review, Elsevier, vol. 71(C), pages 52-66.
    24. O Blanchard & A Landier, 2002. "The Perverse Effects of Partial Labour Market Reform: fixed--Term Contracts in France," Economic Journal, Royal Economic Society, vol. 112(480), pages 214-244, June.
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    Citations

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    Cited by:

    1. Alexander Hijzen & Pedro Martins & Jante Parlevliet, 2017. "Collective bargaining through the magnifying glass: A comparison between the Netherlands and Portugal," DNB Working Papers 576, Netherlands Central Bank, Research Department.
    2. repec:eee:labeco:v:48:y:2017:i:c:p:105-119 is not listed on IDEAS
    3. E. Gautier & D. Fougère & S. Roux, 2016. "The Impact of the National Minimum Wage on Industry-Level Wage Bargaining in France," Working papers 587, Banque de France.
    4. Pedro S. Martins, 2015. "Working to get fired? Regression discontinuity effects of unemployment benefit eligibility on prior employment duration," Working Papers 61, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research.
    5. Pedro S. Martins, 2016. "Can overtime premium flexibility promote employment? Firm- and worker-level evidence from a labour law reform," Working Papers 72, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research.
    6. John T. Addison, 2016. "Collective bargaining systems and macroeconomic and microeconomic flexibility: the quest for appropriate institutional forms in advanced economies," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 5(1), pages 1-53, December.
    7. Dierk Herzer, 2016. "Unions and Income Inequality: A Heterogeneous Panel Co-integration and Causality Analysis," LABOUR, CEIS, vol. 30(3), pages 318-346, September.
    8. Luis Diéz-Catalán & Ernesto Villanueva, 2015. "Contract staggering and unemployment during the great recession: evidence from Spain," Working Papers 1431, Banco de España;Working Papers Homepage.
    9. Martins, Pedro S., 2016. "Should the Maximum Duration of Fixed-Term Contracts Increase in Recessions? Evidence from a Law Reform," IZA Discussion Papers 10206, Institute for the Study of Labor (IZA).
    10. Martins, Pedro S. & Pessoa e Costa, Sofia, 2014. "Reemployment and Substitution Effects from Increased Activation: Evidence from Times of Crisis," IZA Discussion Papers 8600, Institute for the Study of Labor (IZA).
    11. Alexander Hijzen & Pedro S. Martins, 2016. "No Extension without Representation? Evidence from a Natural Experiment in Collective Bargaining," Working Papers 68, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research.
    12. Fernando Martins, 2015. "On the wage bargaining system in Portugal," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.
    13. repec:wsi:jicepx:v:08:y:2017:i:01:n:s1793993317500028 is not listed on IDEAS
    14. Pedro S. Martins, 2016. "The third worker: Assessing the trade-off between employees and contractors," Working Papers 75, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research.
    15. Guimaraes, Paulo & Martins, Fernando & Portugal, Pedro, 2017. "Upward Nominal Wage Rigidity," IZA Discussion Papers 10510, Institute for the Study of Labor (IZA).
    16. repec:ces:ifofob:84 is not listed on IDEAS
    17. Aida Caldera Sánchez & Alain de Serres & Naomitsu Yashiro, 2016. "Reforming in a difficult macroeconomic context: A review of the issues and recent literature," OECD Economics Department Working Papers 1297, OECD Publishing.
    18. Pedro S. Martins, 2015. "The Diversity of Personnel Practices and Firm Performance," Working Papers 62, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research.
    19. Addison, John T. & Portugal, Pedro & Vilares, Hugo, 2015. "Unions and Collective Bargaining in the Wake of the Great Recession," IZA Discussion Papers 8943, Institute for the Study of Labor (IZA).
    20. Hartog, Joop & Raposo, Pedro, 2017. "Are starting wages reduced by an insurance premium for preventing wage decline? Testing the prediction of Harris and Holmstrom (1982)," Labour Economics, Elsevier, vol. 48(C), pages 105-119.
    21. Savšek, Simon, 2018. "What are the main obstacles to hiring after recessions in Europe?," Working Paper Series 2153, European Central Bank.
    22. Martins, Pedro S., 2017. "Economic effects of overtime premium flexibility: Firm- and worker-level evidence from a law reform," GLO Discussion Paper Series 102, Global Labor Organization (GLO).
    23. Andrew Garin & Filipe Silverio, 2017. "How Does Firm Performance Affect Wages? Evidence from Idiosyncratic Export Shocks," 2017 Papers pga940, Job Market Papers.

    More about this item

    Keywords

    Collective agreements; worker flows; labour law;

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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