How are Wages Determined? A Quasi-Experimental Test of Wage Determination Theories

Marcelo Carvalho (sdecarvalho.marcelo@gmail.com), Joao Galindo da Fonseca and Rogerio Santarrosa (rogeriobs2@insper.edu.br)
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Marcelo Carvalho: Vancouver School of Economics, UBC, Canada
Rogerio Santarrosa: INSPER Institute of Education and Research, Brasil

Working Paper series from Rimini Centre for Economic Analysis

Abstract: We test whether firm-specific demand shocks impact wages, and disentangle predictions coming from wage bargaining and wage posting. We use a unique institutional feature of public procurement auctions in Brazil: the moment in which the auction ends is random. For close auctions, winner and runner-up are as good as randomly assigned. In addition, contract value is higher for auctions that (randomly) end earlier. Winning a contract increases wages. We disentangle the effect on wages that comes from changes in firm size (wage posting) and the part that comes from changes in contract value (bargaining). We find evidence of bargaining.

Keywords: wage-setting; bargaining; wage posting; rent-sharing; demand shocks (search for similar items in EconPapers)
JEL-codes: J01 J23 J30 (search for similar items in EconPapers)
Date: 2023-05
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:rim:rimwps:23-08

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