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Firms' Margins of Adjustment to Wage Growth. The Case of Italian Collective Bargaining

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  • Francesco Devicienti
  • Bernardo Fanfani

    (Università Cattolica del Sacro Cuore
    Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore)

Abstract

This paper studies firms' adjustment behavior to the growth in labor costs induced by Italian collective bargaining institutions. Our research design compares several firms' outcomes across collective agreements within the same sector and geographic location, exploiting discontinuities in contractual wages' growth as a source of vari- ation in labor costs. Results show that on average employment, revenues, profits and investments fall, wages increase, while firms' productivity and workers' average quality do not change in response to higher labor costs. These e ects are highly heterogeneous across the firms' productivity distribution. Employment, revenues, productivity, profits and investments are positively or not related to contractual wage growth among relatively more ecient firms, while they are negatively related to this shock at less productive companies. More efficient firms tend to substitute high- with low-skilled workers, which are instead more likely to be laid o by less ecient employers. These results suggest that more efficient companies adjust to the generalized growth in labor costs through cost-saving strategies and they may benefit from cleansing effects that tend to increase their product market shares.

Suggested Citation

  • Francesco Devicienti & Bernardo Fanfani, 2021. "Firms' Margins of Adjustment to Wage Growth. The Case of Italian Collective Bargaining," DISCE - Working Papers del Dipartimento di Economia e Finanza def102, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
  • Handle: RePEc:ctc:serie1:def102
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    More about this item

    Keywords

    Collective Bargaining; Minimum Wage; Productivity; Employment; Matched Employer-Employee Data.;
    All these keywords.

    JEL classification:

    • J00 - Labor and Demographic Economics - - General - - - General
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J58 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Public Policy
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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