No Extension Without Representation? Evidence from a Natural Experiment in Collective Bargaining

39 Pages Posted: 19 Sep 2016

See all articles by Alexander Hijzen

Alexander Hijzen

Organization for Economic Co-Operation and Development (OECD)

Pedro S. Martins

Nova School of Business and Economics; IZA Institute of Labor Economics; Global Labor Organization (GLO)

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Abstract

In many countries, notably across Europe, collective bargaining coverage is enhanced by government-issued extensions that widen the reach of collective agreements beyond their signatory parties to all firms and workers in the same sector. This paper analyses the causal impact of such extensions on employment using a natural experiment in Portugal: the immediate suspension by the government that took office in 21 June 2011 of the (until then) nearly automatic extensions. The combination of this suspension and the time needed for processing the extension applications resulted in a sharp and unanticipated decline in the extension probability of agreements signed several months earlier, around 1 March 2011.Our results, based on a regression discontinuity design and matched employer-employee-agreement panel data, suggest that extensions had a negative impact on employment growth. Moreover, the effects tend to be concentrated amongst non-affiliated firms. The lack of representativeness of employer associations is a potentially important factor behind the adverse effect of extensions. Another is the role of retro-activity in combination with the administrative delay in processing extensions. This is particularly relevant in the context of a recession.

Keywords: collective bargaining, industrial relations, employer associations, wage setting, employment

JEL Classification: J52, J58, J21

Suggested Citation

Hijzen, Alexander and Martins, Pedro S., No Extension Without Representation? Evidence from a Natural Experiment in Collective Bargaining. IZA Discussion Paper No. 10204, Available at SSRN: https://ssrn.com/abstract=2840148 or http://dx.doi.org/10.2139/ssrn.2840148

Alexander Hijzen (Contact Author)

Organization for Economic Co-Operation and Development (OECD) ( email )

2 rue Andre Pascal
Paris Cedex 16, 75775
France

Pedro S. Martins

Nova School of Business and Economics ( email )

Campus de Carcavelos
Rua da Holanda, 1
Carcavelos, 2775-405
Portugal

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Global Labor Organization (GLO) ( email )

Collogne
Germany

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