Wage Flexibility Under Sectoral Bargaining
Sectoral contracts in many European countries set wage floors for different occupation groups. In addition, employers often pay a wage premium (or wage cushion) to individual workers. We use administrative data from Portugal, linked to collective bargaining agreements, to study the interactions between wage floors and wage cushions and quantify the impact of sectoral wage floors. Although wages exhibit a “spike” at the wage floor, a typical worker receives a 20% premium over the floor, with larger cushions for older and better-educated workers and at higher-productivity firms. Cushions also allow wages to covary with firm-specific productivity, even within sectoral agreements. Contract negotiations tend to raise all wage floors proportionally, with increases that reflect average productivity growth among covered firms. As floors rise, however, cushions are compressed, leading to an average passthrough rate of only about 50%. We find no evidence of employment responses to floor increases. Finally, we use a series of counterfactual simulations to show that real wage reductions during the recent financial crisis arose through reductions in real wage floors, reductions in real cushions, and a re-allocation of workers to lower wage floors. Offsetting these effects was a rapid rise in education of new cohorts, which in the absence of other factors would have led to rising real wages.
We are very grateful to Laura Giuliano, Atilla Lindner, Patrick Kline and seminar participants at UC Berkeley and the CESIfo Labour Webinar for helpful comments. We also thank Xianjun Zhang, Rafael Cardoso and Jose Garcia-Louzao for outstanding research assistance. We thank the National Statistical Office and the Ministry of Labor of Portugal for data access. Cardoso acknowledges financial support from the Spanish Ministry of Science and Innovation, through the Severo Ochoa Programme for Centres of Excellence in R&D (CEX2019-000915-S) and grant PID2019-108144GB-100. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
David Card & Ana Rute Cardoso, 2022. "Wage Flexibility under Sectoral Bargaining," Journal of the European Economic Association, vol 20(5), pages 2013-2061. citation courtesy of