Labor Market Institutions and Wage-Setting Power: Evidence from Latin America and the Caribbean

Francesco Amodio, Emanuele Brancati, Nicolás de Roux and Michele Di Maio
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Emanuele Brancati: Sapienza University of Rome
Michele Di Maio: Sapienza University of Rome

No 2025-26, Documentos CEDE from Universidad de los Andes, Facultad de Economía, CEDE

Abstract: We measure firms’ wage-setting power in 16 Latin American and Caribbean countries. Exploiting variation in firms’ exposure to trade and exchange rates, we generate shocks to labor demand to trace out firm-level labor supply curves and quantify labor market power. We estimate an inverse labor supply elasticity of 0.82, implying that workers receive 55 cents per additional dollar produced. Wage-setting power is significantly higher among firms in countries with lower union density, limited collective bargaining, and no unemployment protection. This underscores the role of labor market institutions in shaping firms’ wagesetting power and the distribution of the gains from trade.

Keywords: firms; labor market power; labor institutions (search for similar items in EconPapers)
JEL-codes: J31 J50 O54 (search for similar items in EconPapers)
Pages: 45
Date: 2025-08
New Economics Papers: this item is included in nep-com, nep-lam and nep-lma
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Published in Documentos CEDE - Universidad de los Andes

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