Contractual Wages and the Wage Cushion under Different Bargaining Settings

Abstract

How does a typically European bargaining system, with collective bargaining and national minimum wage, coexist with low unemployment and high wage flexibility? A unique data set on workers, firms, and collective bargaining contracts in Portugal is used to analyze the determinants of both the contractual wage and the wage cushion (difference between contractual and actual wages). The results indicate that the wage cushion stretches the returns to worker and firm attributes, whereas it shrinks the returns to union power. Therefore, firm-specific arrangements partly offset collective bargaining, granting firms certain freedom when setting wages. Contractual wages reflect trade unions' egalitarian policy.

Employment and wage effects of extending collective bargaining agreements

“…A first indication of that compression effect can be obtained by examining the degree of concentration of earnings around the bargained minimum wage. In Portugal, for example, wages were densely concentrated around bargained minimum wages in a set of industries that represented 10% of the labor force in 1999 [3]. There is similar evidence for Spain, and in both countries earning bargained wages is most common among workers in small firms, female workers, and employees with low tenure [4].…”

Gender segregation and the wage gap in Portugal: an analysis at the establishment level

“…Indeed, high wage ‡exibility has been pointed out as a particular feature of this market (OECD, 1994), and studies at the micro level have shown that …rms have considerable degree of freedom when manipulating wages, despite widespread collective bargaining (Cardoso and Portugal, 2005).…”

Do Wages Continue Increasing at Older Ages? Evidence on the Wage Cushion in the Netherlands

“…Descriptive statistics show that wage cushions exist in the Dutch private sector, just like in Portugal (Cardoso and Portugal, 2005) and Germany (Jung and Schnabel, 2011). The central 9 The secondary education sector is an exception, caused by the fact that we included wage ceiling for teachers in the dataset, while we are unable to distinguish teachers from governors.…”

“…Cardoso and Portugal (2005) investigate how a system of collective bargaining can coexist with low unemployment and high wage flexibility in Portugal. They find that the wage cushion serves as a means to overcome the constraints imposed by collective bargaining.…”