NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Effect of Firm-Level Contracts on the Structure of Wages: Evidence from Matched Employer-Employee Data

David Card, Sara de la Rica

NBER Working Paper No. 11829
Issued in December 2005
NBER Program(s):   LS

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.

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Document Object Identifier (DOI): 10.3386/w11829

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).

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