An Application of Quantile Analysis

45 Pages Posted: 20 Apr 2016

See all articles by William F. Maloney

William F. Maloney

World Bank - Poverty and Economic Management Unit; IZA Institute of Labor Economics; World Bank - Development Research Group (DECRG)

Eduardo P. Ribeiro

Federal University of Rio Grande do Sul - UFRGS

Date Written: April 17, 1999

Abstract

In this study of Mexican firms, unions appear to bargain principally about employment rather than wages and firms appear to pay efficiency wages above market clearing to reduce turnover. Since minimum wages are not binding, whatever labor market segmentation is observed arises endogenously, and is not due to union- or government-induced distortions. Applying quantile analysis to detailed firm-level data from Mexico, Maloney and Ribeiro study determinants of demand and wages for two classes of labor.

Unions appear to have a strong impact on how much unskilled labor is employed but not on wages. This suggests an extreme example of efficient bargaining rather than the more common monopoly union behavior. The impact on productivity is, by definition, negative, but unions could also be said to be forcing firms to use appropriate technology (less capital and more workers), increasing the total amount of labor employed in the economy. The only impact on wages appears for the tenth (lowest) quantile of unskilled workers, suggesting that unions prevent workers from being paid too far below the median for their skill level.

Maloney and Ribeiro identify significant efficiency wage effects where firms pay above market clearing to prevent labor turnover both in labor demand and in the wage equations. Since minimum wages are not binding and the union impact on wages is small, this suggests that whatever segmentation exists emerges endogenously and is not due to union- or government-induced distortions. Maloney and Ribeiro offer the first use of quantile analysis to analyze labor demand at the firm level, and one of the first uses of correct standard errors in two-stage least-squares quantile regression.

This paper - a product of the Poverty Reduction and Economic Management Sector Unit, Latin America and the Caribbean Region - is part of a larger effort in the region to understand the functioning of developing country labor markets.

Suggested Citation

Maloney, William F. and Ribeiro, Eduardo P., An Application of Quantile Analysis (April 17, 1999). World Bank Policy Research Working Paper No. 2131. Available at SSRN: https://ssrn.com/abstract=620500

William F. Maloney (Contact Author)

World Bank - Poverty and Economic Management Unit ( email )

1818 H Street NW
Washington, DC 20433
United States
202-473-6340 (Phone)
202-522-0054 (Fax)

IZA Institute of Labor Economics

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

World Bank - Development Research Group (DECRG)

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

Eduardo P. Ribeiro

Federal University of Rio Grande do Sul - UFRGS ( email )

Rio Grande do Sul
Graduate Program in Economics - PPGE Av. Joao Pessoa, 52, sala 33b
Porto Alegre 90040-000
Brazil
55 51 3316 3440 (Phone)
55 51 3316 3507 (Fax)

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