Wage Flexibility Under Sectoral Bargaining / David Card, Ana Rute Cardoso.

Format:

Book

Author/Creator:

Card, David.

Contributor:

National Bureau of Economic Research.

Cardoso, Ana Rute.

Series:

Working Paper Series (National Bureau of Economic Research) no. w28695.

NBER working paper series no. w28695

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2021.

Summary:

Sectoral contracts in many European countries set wage floors for different occupation groups. In addition, employers often pay a wage premium (or wage cushion) to individual workers. We use administrative data from Portugal, linked to collective bargaining agreements, to study the interactions between wage floors and wage cushions and quantify the impact of sectoral wage floors. Although wages exhibit a "spike" at the wage floor, a typical worker receives a 20% premium over the floor, with larger cushions for older and better-educated workers and at higher-productivity firms. Cushions also allow wages to covary with firm-specific productivity, even within sectoral agreements. Contract negotiations tend to raise all wage floors proportionally, with increases that reflect average productivity growth among covered firms. As floors rise, however, cushions are compressed, leading to an average passthrough rate of only about 50%. We find no evidence of employment responses to floor increases. Finally, we use a series of counterfactual simulations to show that real wage reductions during the recent financial crisis arose through reductions in real wage floors, reductions in real cushions, and a re-allocation of workers to lower wage floors. Offsetting these effects was a rapid rise in education of new cohorts, which in the absence of other factors would have led to rising real wages.

Notes:

Print version record

April 2021.