The Effect of Firm-Level Contracts on the Structure of Wages: Evidence from Matched Employer-Employee Data

David Card, University of California, Berkeley
Sara de la Rica, Universidad del País

Abstract

In many European countries, sectoral bargaining agreements are automatically extended to cover all firms in an industry. Employers and employees can also negotiate firm-specific contracts. The authors of this paper use a large matched employer-employee data set from a 1995 survey in Spain to study the effects of firm-level contracting on the structure of wages. They estimate a series of wage determination models, including specifications that control for individual characteristics, coworker characteristics, the bargaining status of the workplace, and the probability that the workplace was covered by a firm-level contract. They find that firm-level contracting was associated with a 5–10% wage premium, with larger premiums for more highly paid workers. Although they cannot decisively test between alternative explanations for the firm-level contracting premium, they find that workers with firm-specific contracts had substantially longer job tenure than other workers, suggesting that the premium was at least partially a non-competitive phenomenon.

Recommended Citation

Card, David and de la Rica, Sara (2006) "The Effect of Firm-Level Contracts on the Structure of Wages: Evidence from Matched Employer-Employee Data," Industrial & Labor Relations Review, Vol. 59, No. 4, article 3.
Available at: http://digitalcommons.ilr.cornell.edu/ilrreview/vol59/iss4/3