Working Paper: CEPR ID: DP3510
Authors: Pierre Cahuc; Christian Gianella; Dominique Goux; Andre Zylberberg
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.
Keywords: Bargaining Power; Interfirm Wage Differentials; Union Behaviour
JEL Codes: J33; J51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Job destruction rates (J63) | Worker compensation (J28) |
| Job destruction rates (J63) | Bargaining power (C79) |
| Bargaining power (C79) | Worker compensation (J28) |
| Job destruction rates (J63) | Wage differentials (J31) |
| Lower job destruction rates (J63) | Lower wages (J31) |