Collective Bargaining, Wages, and Inequality
Friday, Jan. 7, 2022 10:00 AM - 12:00 PM (EST)
- Chair: Ellora Derenoncourt, Princeton University
Wage Flexibility under Sectoral Bargaining
AbstractSectoral contracts in many European countries set minimum wage floors for different occupation groups. In addition, employers often pay an extra premium (a wage cushion) to individual workers. We use administrative data from an annual census of employees in Portugal, linked to collective bargaining agreements, to study the interactions between wage floors and wage cushions and assess the impact of wage floors. We show that wages exhibit a â€œspikeâ€ at the wage floor, but that a typical worker receives a 20% premium over the floor, with wide variation across workers and firms. Flexibility of cushions allows mean wages to respond to firm-specific productivity differences even within the same sectoral agreement. New contract negotiations tend to raise all wage floors proportionally, with increases that reflect average productivity growth among covered firms. As floors rise, however, wage cushions are eroded, leading to an average passthrough rate of only about one-half. We also 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 were facilitated by reductions in real wage floors (-2.2 ppts), reductions in real cushions (-2.5 ppts), and the reallocation of workers to lower wage floors (-4.8 ppts). Offsetting these effects was a rapid rise in share of workers at higher education levels, which in the absence of other factors would have led to rising real wages.
Collective Bargaining, the Minimum Wage, and the Racial Earnings Gap
AbstractThis paper studies how a national minimum wage and firm- and sector- specific wage floors affect racial earnings disparities. Our context is the Brazilian economy, characterized by persistently high racial disparities, a tradition of extensive sectoral bargaining, and the availability of detailed labor force surveys and administrative matched employer-employee data with information on race. We first analyze the effect of the large increase in the minimum wage that occurred between 1999 and 2009. Using a variety of research designs and identification strategies, we obtain three main findings. First, the increase in the minimum wage erased the racial earnings gap up to the 10th percentile of the national wage distribution and up to the 30th percentile in the poorest region, the Northeast. Second, there is no evidence of significant reallocation of workers from the formal to informal sector. This can be explained by the fact that the minimum wage de facto binds in the informal sector (with the exception of agriculture, domestic workers, and the self-employed). Third, we find no evidence of significant dis-employment effects, or white-nonwhite labor-labor substitution. As a result, minimum wage increases of the 2000s led to a large decline in the economy-wide racial income gap in Brazil. The second part of the paper studies the effect of negotiated firm- and sector-specific wage floors. Our preliminary results suggest a more nuanced picture. First, within firms, nonwhite workers appear slightly more likely to be in occupations not covered by wage floors. Second, we find significant dynamic effects of the introduction of wage floors on the composition of the workforce, with a growing employment share in uncovered occupations in subsequent years. Taken together, these results suggest that comprehensive and uniform labor standards like the minimum wage may be among the most powerful labor market institutions to reduce racial earnings disparities.
- J3 - Wages, Compensation, and Labor Costs
- J1 - Demographic Economics