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

Ana Rute Cardoso and Pedro Portugal ()

No 914, IZA Discussion Papers from Institute of Labor Economics (IZA)

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 drift; wage distribution; employer coordination; union bargaining power (search for similar items in EconPapers)
JEL-codes: D21 J31 J51 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2003-10
New Economics Papers: this item is included in nep-mfd
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Citations: View citations in EconPapers (11)

Published - published as 'Contractual wages and the wage cushion under different bargaining settings' in: Journal of Labor Economics, 2005, 23 (4), 875-902

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Related works:
Working Paper: Bargained Wages, Wage Drift and the Design of the Wage-Setting System (2004)
Working Paper: Bargained Wages, Wage Drift and the Design of the Wage Setting System (2003)
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