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

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...

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Bibliographic Details
Published inLabour economics Vol. 16; no. 4; pp. 440 - 450
Main Authors Bastos, Paulo, Monteiro, Natália P., Straume, Odd Rune
Format Journal Article
LanguageEnglish
Published Elsevier B.V 01.08.2009
Elsevier
SeriesLabour Economics
Subjects
Firm heterogeneity
Trade unions
Wage determination
Wage determination Trade unions Firm heterogeneity
D21
Trade unions
Firm heterogeneity
J51
J31
L13
Wage determination
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Summary: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.
ISSN:0927-5371
1879-1034
DOI:10.1016/j.labeco.2008.12.004