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Collective Bargaining, Wages, and Inequality

Paper Session

Friday, Jan. 7, 2022 10:00 AM - 12:00 PM (EST)

Hosted By: Labor and Employment Relations Association
  • Chair: Ellora Derenoncourt, Princeton University

The Impact of Sectoral Bargaining on Spillovers and the Wage Structure in Monopsonistic Labor Markets

Ihsaan Bassier
,
University of Massachusetts-Amherst

Abstract

How does sectoral bargaining affect the broader wage structure of monopsonistic labor markets? And what does this tell us about the (non) competitive dynamics of such labor markets? I study large contracted wage increases negotiated by sectoral bargaining councils in South Africa using matched employer-employee tax panel data from 2008 to 2018. My stacked event study of bargaining council firms shows sharp wage increases, concentrated on workers in the middle of the overall distribution. Moreover, I observe spillovers on firms competing in the same labor market, as estimated by pre-event worker flows, such that more connected firms increase wages more -- a prediction of monopsonistic models contrasting with competitive models. The effects on wages, worker separations, and firm size for both treated and spillover firms differ by their positions in the wage distribution, with workers re-allocating from low towards higher paying firms. The overall effect is to compress the labor market structure upwards, highlighting an interplay between institutional regulation, monopsonistic competition, and firm heterogeneity which reaches far beyond the direct impact on bargaining council firms.

Wage Flexibility under Sectoral Bargaining

David Card
,
University of California-Berkeley
Ana Cardoso
,
Institute for Economic Analysis

Abstract

Sectoral 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 “spike” 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

Ellora Derenoncourt
,
Princeton University
François Gerard
,
Queen Mary University of London
Lorenzo Lagos
,
Princeton University
Claire Montialoux
,
University of California-Berkeley

Abstract

This 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.
Discussant(s)
Heather Sarsons
,
University of Chicago
Arindrajit Dube
,
University of Massachusetts-Amherst
Suresh Naidu
,
Columbia University
JEL Classifications
  • J3 - Wages, Compensation, and Labor Costs
  • J1 - Demographic Economics