Organised Labour, Labour Market Imperfections, and Employer Wage Premia

Abstract

This paper examines how collective bargaining through unions and workplace codetermination through works councils shape labour market imperfections and how labour market imperfections matter for employer wage premia. Based on representative German plant data for the years 1999-2016, we document that labour market imperfections are the norm rather than the exception. Wage mark-downs, that is wages below the marginal revenue product of labour rooted in employers' monopsony power, are the most prevalent outcome. We further find that both types of organised labour are accompanied by a smaller prevalence and intensity of wage mark-downs whereas the opposite holds for wage markups , that is wages above the marginal revenue product of labour rooted in workers' monopoly power. Finally, we document a close link between our production-based labour market imperfection measures and employer wage premia. The prevalence and intensity of wage mark-downs are associated with a smaller level and larger dispersion of premia whereas wage markups are only accompanied by a higher premium level.

Labour-augmenting technical change data for alternative elasticities of substitution: growth, slowdown, and distribution dynamics

“…Mertens (2020) reports a range of 0.66-1.32 with an average standard deviation of 0.51 for Germany's industry at the two digit level. Dobbelaere et al (2020) find an MPL-to wage ratio of 1/0.45 = 2.22 for the 49% of the German plants, which are under the monopsonistic regime.…”

“…MPLs are estimated from Cobb-Douglas functions in most of these papers. Exceptions are Okudaira and Takizawa (2019), Tortarolo and Zarate (2020), Dobbelaere et al (2020) using a translog function, and Liu et al using the quadratic terms of a translog function. Other things equal, the MPL from a CES function would be higher with a negative CES parameter belonging to an elasticity of substitution below unity.…”

Worker Participation in Decision‐making, Worker Sorting, and Firm Performance

“…At the individual level, Addison, Teixeira and Zwick (2010) show that workers in plants with a works council benefit from works council wage premia, a result that has been reinforced by Hirsch and Mueller (2020). Recently, Dobbelaere, Hirsch, Mueller, and Neuschaeffer (2020) document that works councils are indeed positively related to worker bargaining power.…”