Collective bargaining, wage rigidities and employment: an analysis using microeconomic data

Reforms of the regulation of collective bargaining were introduced in Spain in 2010 and 2012. Among other objectives, the aim was to improve the response of wages to business cycle fluctuations. During the recessions that began in 1993 and in 2008, wage adjustment was limited, while employment fell significantly. The regulation of collective bargaining in Spain, which introduced minimum wages that had to be paid by all the firms in a particular sector, irrespective of their situation, was one of the sources of wage rigidities that led to most of the weight of adjustment falling on employment. This article offers an estimate of the impact that wage rigidity had on employment losses at the start of the 2008 recession, before the two latest labour market reforms were introduced. This quantification helps to calibrate the extent to which the increase in wage flexibility associated with the collective bargaining reforms may mitigate the destruction of employment in the event of future falls in demand. A number of macroeconomic studies of the consequences for employment of the regulation of collective bargaining basically draw their conclusions from international comparisons. This article, by contrast, uses disaggregated data on individual labour market histories linked to the information available on the collective agreements applicable in each case. The use of disaggregated data is important in the Spanish context, since the regulation of collective bargaining generated heterogeneous wage dynamics across provinces, industries, and workers at the start of the 1993 and 2008 recessions. Of all the workers covered by a collective agreement, 55% had their conditions of employment determined by sectoral agreements at the provincial level, which were not renegotiated frequently. At the same time, the extension of collective agreements to all workers and firms within the scope of the agreement was automatic when the negotiating parties were, in legal terms, sufficiently representative. As a result of these two characteristics, a high proportion of firms ended up being subject to compulsory minimum wages that were infrequently reviewed and that varied from sector to sector and – within the same sector – from province to province. The response of wage settlements to a change in economic activity has therefore been heterogeneous across sectors and provinces. Even within the same province and sector, the wages of different workers have growth at different rates, depending on how close their wage was to that agreed in the relevant collective agreement. The disaggregated information allows, on one hand, this degree of heterogeneity in wage setting to be accommodated and, on the other, its effects on the evolution of employment at the start of a recession to be verified. A brief overview of studies in countries similar to Spain that have adopted a disaggregated approach for estimating the effect of collective bargaining on employment is presented below. Subsequently, the case of Spain is analysed, first, describing how the wages set by collective agreement were adjusted from the start of the 2008 recession and, second, relating the wage changes and employment losses observed for a sample of workers whose wages were determined at the time by sector-level collective agreements.