Bargained Wages, Wage Drift and the Design of the Wage Setting System

28 Pages Posted: 24 Nov 2003

See all articles by Ana Rute Cardoso

Ana Rute Cardoso

Instituto de Analisis Economico (IAE-CSIC); Barcelona Graduate School of Economics (Barcelona GSE); IZA Institute of Labor Economics

Pedro Portugal

Bank of Portugal - Research Department; New University of Lisbon; IZA Institute of Labor Economics

Multiple version iconThere are 2 versions of this paper

Date Written: October 2003

Abstract

This paper aims at answering the question: How does a typically 'European' bargaining system - with collective bargaining, extension mechanisms and national minimum wage - coexist with low unemployment rate and high wage flexibility? A unique data set on workers, firms and collective bargaining contracts in the Portuguese economy is used to analyze the determinants of both the bargained wage and the wage drift. Results indicate that wage drift stretches the returns to every worker and firm attribute, whereas it shrinks the returns to union bargaining power. Therefore, firm-specific arrangements, in the form of wage drift, partly offset collective bargaining, granting firms a high degree of freedom when setting wages. Union bargaining power raises the overall wage level, but lowers the returns on worker attributes, an outcome of the egalitarian policy pursued.

Keywords: wage distribution, wage drift, union bargaining power, employer coordination

JEL Classification: D21, J31, J51

Suggested Citation

Cardoso, Ana Rute and Portugal, Pedro, Bargained Wages, Wage Drift and the Design of the Wage Setting System (October 2003). Available at SSRN: https://ssrn.com/abstract=464680

Ana Rute Cardoso (Contact Author)

Instituto de Analisis Economico (IAE-CSIC) ( email )

Campus UAB
Barcelona, Bellaterra 08193
Spain
3436917157 (Phone)

Barcelona Graduate School of Economics (Barcelona GSE) ( email )

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005
Spain

IZA Institute of Labor Economics ( email )

P.O. Box 7240
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Germany
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Pedro Portugal

Bank of Portugal - Research Department ( email )

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Lisbon 1150-012
Portugal
+351 21 313 0000 (Phone)
+351 21 814 3841 (Fax)

New University of Lisbon

Lisbon, 1099-085
Portugal

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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