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Equalizing Wage Differences and Bargaining Power: Evidence from a Panel of French Firms

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  • Cahuc, Pierre
  • Goux, Dominique
  • Gianella, Christian
  • Zylberberg, Andre

Abstract

In this paper, we develop a dynamic model of firm-level bargaining, along the lines of Manning (1993). In this context, we provide a firm level wage equation that explicitly accounts for firm heterogeneity. This wage equation explains inter-firm wage differentials by differences in labour productivity and job turnover. More precisely, our model predicts that the higher the rate of job destruction within one firm, the higher the compensation of workers. We estimate our wage equation using matched employer-employee panel data in the manufacturing sector, where firms are tracked for five years, between 1988-92. The empirical estimates, using GMM techniques, are fully consistent with our theoretical prediction of equalizing differences: workers who take into account their intertemporal discounted income will support lower wages when they benefit from lower unemployment risks within their firm. In our model, wages are set to maximize a Nash bargain criterion, and according to the estimators used or the industry we consider, we show that workers have an average bargaining power between 0.15 and 0.25, measured on a scale going from 0 to 1.

Suggested Citation

  • Cahuc, Pierre & Goux, Dominique & Gianella, Christian & Zylberberg, Andre, 2002. "Equalizing Wage Differences and Bargaining Power: Evidence from a Panel of French Firms," CEPR Discussion Papers 3510, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:3510
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    Cited by:

    1. Felbermayr, Gabriel & Prat, Julien & Schmerer, Hans-Jörg, 2011. "Globalization and labor market outcomes: Wage bargaining, search frictions, and firm heterogeneity," Journal of Economic Theory, Elsevier, vol. 146(1), pages 39-73, January.
    2. Berson, Clémence & Ferrari, Nicolas, 2015. "Financial incentives and labour market duality," Labour Economics, Elsevier, vol. 37(C), pages 77-92.
    3. Ebell, Monique & Haefke, Christian, 2006. "Product Market Regulation and Endogenous Union Formation," IZA Discussion Papers 2222, Institute of Labor Economics (IZA).
    4. Monique Ebell & Christian Haefke, 2009. "Product Market Deregulation and the U.S. Employment Miracle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(3), pages 479-504, July.
    5. Georges Prat, 2013. "Rueff et l'analyse du chômage: Quels heritages?," Working Papers 2013-26, Department of Research, Ipag Business School.
    6. Markusen, James R. & Trofimenko, Natalia, 2009. "Teaching locals new tricks: Foreign experts as a channel of knowledge transfers," Journal of Development Economics, Elsevier, vol. 88(1), pages 120-131, January.
    7. Hübler, Dominik & Hübler, Olaf, 2006. "Is There a Trade-off Between Job Security and Wages in Germany and the UK?," IZA Discussion Papers 2241, Institute of Labor Economics (IZA).
    8. Böckerman, Petri & Ilmakunnas, Pekka & Johansson, Edvard, 2011. "Job security and employee well-being: Evidence from matched survey and register data," Labour Economics, Elsevier, vol. 18(4), pages 547-554, August.
    9. repec:ipg:wpaper:8 is not listed on IDEAS
    10. Monique Ebell & Christian Haefke, 2002. "Product Market Deregulation and Labor Market Outcomes," Working Papers 02.08, Swiss National Bank, Study Center Gerzensee.
    11. Gruetter, Max & Lalive, Rafael, 2009. "The importance of firms in wage determination," Labour Economics, Elsevier, vol. 16(2), pages 149-160, April.
    12. Tomasz Mickiewicz & Kate Bishop, 2003. "Wage Determination: Privatised, New Private And State Owned Companies. Empirical Evidence From Panel Data," William Davidson Institute Working Papers Series 584, William Davidson Institute at the University of Michigan.
    13. Cheron, A., 2005. "Efficient v.s. equilibrium unemployment with match-specific costs," Economics Letters, Elsevier, vol. 88(2), pages 176-183, August.
    14. Aguiar, Alvaro & Ribeiro, Ana Paula, 2009. "Monetary policy and the transition costs of a labor market reform," Journal of Macroeconomics, Elsevier, vol. 31(4), pages 547-560, December.
    15. Janos Kollő & Tomasz Mickiewicz, 2005. "Wage Bargaining, Privatisation, Ability to Pay and Outside Options: Evidence from Hungary," Post-Communist Economies, Taylor & Francis Journals, vol. 17(4), pages 465-483.
    16. Julien Albertini & Xavier Fairise, 2009. "Optimal unemployment benefit financing scheme : A transatlantic comparison," Documents de recherche 09-01, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
    17. Etienne Campens, 2004. "A multiple matching model with endogenous participation : what's new about the supply-side policies?," Computing in Economics and Finance 2004 301, Society for Computational Economics.
    18. Bruno Crépon & Christian Gianella, 2001. "Fiscalité et coût d'usage du capital : incidences sur l'investissement, l'activité et l'emploi," Économie et Statistique, Programme National Persée, vol. 341(1), pages 107-128.
    19. Emanuela Ciapanna & Marco Taboga & Eliana Viviano, 2015. "Sectoral differences in managers’ compensation: insights from a matching model," Temi di discussione (Economic working papers) 1000, Bank of Italy, Economic Research and International Relations Area.
    20. Christian Haefke & Monique Ebell, 2004. "The Missing Link: Product Market Regulation, Collective Bargaining and the European Unemployment Puzzle," 2004 Meeting Papers 759, Society for Economic Dynamics.
    21. Michel-Pierre Chelini & Georges Prat, 2013. "Cliométrie du modèle WS-PS en France," EconomiX Working Papers 2013-17, University of Paris Nanterre, EconomiX.
    22. repec:ipg:wpaper:2013-008 is not listed on IDEAS
    23. repec:ipg:wpaper:2013-026 is not listed on IDEAS
    24. repec:ipg:wpaper:26 is not listed on IDEAS

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    More about this item

    Keywords

    Union behaviour; Bargaining power; Inter-firm wage differentials;
    All these keywords.

    JEL classification:

    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

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