Firm Heterogeneity and Wages under Different Bargaining Regimes: Does a Centralised Union Care for Low-Productivity Firms?

24 Pages Posted: 17 Apr 2009

See all articles by Nicole Gürtzgen

Nicole Gürtzgen

ZEW – Leibniz Centre for European Economic Research

Date Written: 2008

Abstract

This paper studies the relationship between wages and the degree of firm heterogeneity in a given industry under different wage setting structures. To derive testable hypotheses, we set up a theoretical model that analyses the sensitivity of wages to the variability in productivity conditions in a unionsised oligopoly framework. The model distinguishes centralised and decentralised wage determination. The theoretical results predict wages to be negatively associated with the degree of firm heterogeneity under centralised wage-setting, as unions internalise negative externalities of a wage increase for low-productivity firms. We test this prediction using a linked employeremployee panel data set from the German mining and manufacturing sector. Consistent with our hypotheses, the empirical results suggest that under industry-level bargaining workers in more heterogeneous sectors receive lower wages than workers in more homogeneous sectors. In contrast, the degree of firm heterogeneity is found to have no negative impact on wages in uncovered firms and under firm-level contracts.

Keywords: Wage-Setting Structure, Unions, Oligopoly, Linked Employer-Employee Data

JEL Classification: C23, J31, J51, L13

Suggested Citation

Guertzgen, Nicole, Firm Heterogeneity and Wages under Different Bargaining Regimes: Does a Centralised Union Care for Low-Productivity Firms? (2008). ZEW - Centre for European Economic Research Discussion Paper No. 08-130, Available at SSRN: https://ssrn.com/abstract=1389442 or http://dx.doi.org/10.2139/ssrn.1389442

Nicole Guertzgen (Contact Author)

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1 D-68161 Mannheim
Germany

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