Wage Drift in Collective Bargaining at the Firm Level: Evidence from Spain

We present a simple model of the determinants and economic effects of formal firm-level bargaining in a collective bargaining system with mandatory extension of sectoral collective agreements. We model the effects on agents' incentives to engage in relation-specific investments, and test the main predictions of the model using Spanish data which combine information from collective bargaining statistics and from firms' balance sheets. We find that: (i) controlling for an endogeneity bias, firms' size appears to increase the ability of workers to increase wages, (ii) surplus per employee is lower in firms with formal firm-level bargaining; (iii) controlling for average surplus, the number of employees and other variables, total payments to workers are higher and less correlated with the surplus variable in firms with formal bargaining, and (iv) larger firms are more likely to develop formal firm-level bargaining.