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IZA
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The Effect of Firm-Level Contracts on the Structure of Wages: Evidence from Matched Employer-Employee Data
by
David Card, Sara de la Rica
(December 2004)
published in: Industrial and Labor Relations Review, 2006, 59 (4), 573-592
Abstract:
In Spain, as in several other 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 to
study the effects of firm-level contracting on the structure of wages. Employees covered by
firm-specific contracts earn about 10 percent more than those covered by sectoral contracts.
The estimated premium is about the same for men in different skill groups, but higher for
more highly skilled women, suggesting that firm-level contracts raise wage inequality for
women. At the establishment level, we compare average wages under firm-level and sectoral
bargaining, controlling for the propensity to negotiate a firm-specific contract. Consistent with
the worker-level models, we find that firm-specific contracting raises average wages, with a
pattern of effects that tends to increase inequality relative to sectoral bargaining for women.
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.
Text: See Discussion Paper No. 1421
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