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Who's got the power? Wage determination and its resilience in the Great Recession

de Almeida Vilares, Hugo and Reis, Hugo (2022) Who's got the power? Wage determination and its resilience in the Great Recession. CEP Discussion Papers (1885). London School of Economics and Political Science. Centre for Economic Performance, London, UK.

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Abstract

Whereas wage inequality has risen markedly in most OECD countries in recent decades, it has fallen in several Southern European economies. To shed light on this phenomenon, we embed sectoral bargaining, which is common in Southern European economies, in a dynamic search and matching model. We estimate the model using comprehensive employer-employee data from Portugal for the last two decades and its data on collective bargaining agreements in different sectors, which allows us to assess the evolution of rent sharing. We find that since the mid-2000s, worker bargaining power has grown slightly at the bottom of the skill distribution while shrinking at the middle and top, contributing to the compression of the wage distribution. These changes, which persisted even during the Great Recession, increased the importance of sectoral bargaining in wage determination, weakened the relationship between wages and firm productivity, and reduced the assortative matching of workers to firms.

Item Type: Monograph (Discussion Paper)
Official URL: https://cep.lse.ac.uk/_new/publications/discussion...
Additional Information: © 2022 The Authors
Divisions: LSE
Subjects: H Social Sciences > HD Industries. Land use. Labor
H Social Sciences > HB Economic Theory
JEL classification: C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C50 - General
C - Mathematical and Quantitative Methods > C6 - Mathematical Methods and Programming > C61 - Optimization Techniques; Programming Models; Dynamic Analysis
C - Mathematical and Quantitative Methods > C6 - Mathematical Methods and Programming > C62 - Existence and Stability Conditions of Equilibrium
C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C78 - Bargaining Theory; Matching Theory
J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J31 - Wage Level and Structure; Wage Differentials by Skill, Training, Occupation, etc.
J - Labor and Demographic Economics > J5 - Labor-Management Relations, Trade Unions, and Collective Bargaining > J51 - Trade Unions: Objectives, Structure, and Effects
J - Labor and Demographic Economics > J5 - Labor-Management Relations, Trade Unions, and Collective Bargaining > J53 - Labor-Management Relations; Industrial Jurisprudence
Date Deposited: 26 Jan 2023 16:03
Last Modified: 15 Sep 2023 23:59
URI: http://eprints.lse.ac.uk/id/eprint/118036

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