The Effect of Firm-Level Contracts on the Structure of Wages: Evidence from Matched Employer-Employee Data
NBER Working Paper No. 11829
In many European countries sectoral bargaining agreements are automatically extended to cover all firms in an industry. Employers and employees can also negotiate firm-specific contracts. We use a large matched employer-employee data set from Spain to study the effects of firm-level contracting on the structure of wages. We estimate a series of wage determination models, including specifications that control for individual characteristics, co-worker characteristics, the bargaining status of the workplace, and the probability the workplace is covered by a firm-level contract. We find that firm-level contracting is associated with a 5-10 percent wage premium, with larger premiums for more highly paid workers. Although we cannot decisively test between alternative explanations for the firm-level contracting premium, workers with firm-specific contracts have significantly longer job tenure, suggesting that the premium is at least partially a non-competitive phenomenon.
Published: Card, David and Sara de la Rica. “The Effect of Firm-Level Contracts on the Structure of Wages: Evidence from Matched Employer-Employee Data.” Industrial and Labor Relations Review (October 2006).