Firm Heterogeneity and Wages in Unionised Labour Markets: Theory and Evidence

The University of Notthingham, GEP Research Paper 2008/38

34 Pages Posted: 25 Jul 2009

See all articles by Paulo Bastos

Paulo Bastos

affiliation not provided to SSRN

Natália P. Monteiro

University of Minho - Economic Policies Research Unit (NIPE)

Odd Rune Straume

University of Minho - Economic Policies Research Unit (NIPE); CESifo (Center for Economic Studies and Ifo Institute)

Date Written: June 15, 2009

Abstract

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.

Keywords: wage determination, trade unions, firm heterogeneity

JEL Classification: D21, J31, J51, L13

Suggested Citation

Bastos, Paulo and Monteiro, Natália P. and Straume, Odd Rune, Firm Heterogeneity and Wages in Unionised Labour Markets: Theory and Evidence (June 15, 2009). The University of Notthingham, GEP Research Paper 2008/38, Available at SSRN: https://ssrn.com/abstract=1420040 or http://dx.doi.org/10.2139/ssrn.1420040

Paulo Bastos (Contact Author)

affiliation not provided to SSRN ( email )

Natália P. Monteiro

University of Minho - Economic Policies Research Unit (NIPE) ( email )

Campus de Gualtar
Braga, 4710-057
Portugal

Odd Rune Straume

University of Minho - Economic Policies Research Unit (NIPE) ( email )

Campus de Gualtar
Braga, 4710-057
Portugal

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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