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

Abstract

In many countries wages are set in two stages, where industry-level collective bargaining is followed by …rm-speci…c arrangements determining actual paid wages as a markup on the industry wage ‡oor. What explains the wage set in each of these stages? In this paper we show that both the industry wage ‡oor and the average wage cushion are systematically associated with the degree of …rm heterogeneity in the industry: The former (latter) is negatively (positively) associated with the productivity spread. Furthermore, since the response of the wage ‡oor 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 …rm productivity heterogeneity and a two-tiered wage setting system. They are then con…rmed by administrative data covering virtually all workers, …rms and collective bargaining agreements of the Portuguese private sector for the period 1991-2000.

Paying More than Necessary? The Wage Cushion in Germany

“…1 1 The expression ‘wage cushion’, which seems to have been coined by Olivier Blanchard, has come into use recently in order to overcome certain ambiguities (see Bastos et al ., 2009; Cardoso and Portugal, 2005). The older literature often uses the expressions ‘wage drift’ (see, e.g.…”

“…3 3 See, e.g. Holden (1990, 1998), Holmlund and Skedinger (1990), Pehkonen and Viskari (1994), and Hibbs and Locking (1996) for the Nordic countries, Lupi and Ordine (1993) and Ordine (1996) for Italy, Cardoso and Portugal (2005) and Bastos et al . (2009) for Portugal, Palenzuela and Jimeno (1996) for Spain, and Meyer (1994) and Bellmann and Kohaut (1995) for western Germany. …”

Rent Sharing in Portuguese Banking *

“…1 1 Bastos et al . (2009) also find evidence for a the existence of a considerable wage cushion in most Portuguese industries. …”

Trade, productivity and profitability: On profit levels and profit margins

“…In the Egger–Kreickemeier model, more productive firms pay higher wages at the rate . The speed at which wage rates rise as productivity rises in markets with heterogeneous firms is, of course, an empirical matter; see, for example, Bastos, Monteiro, and Straume (). Perhaps it is not a power function.…”