Does it matter whether wage bargaining takes place at the industry or firm level? I study output, employment and inequality in a labour search model with collective bargaining. I find that firm-level bargaining -- whether individual or collective -- leads to wage dispersion across firms for identical workers. More productive and larger firms pay higher wages. Young firms pay higher wages, so fewer firms enter. Each firm can lower its wages by hiring more workers, so firms grow to be too large. In the model, industry level bargaining helps with these problems. It reduces wage dispersion, which leads to more output and employment.
Using administrative data for the entire universe of private-sector employment in Italy for the period 1985-2018 we investigate the drivers of the growth in earnings and wage inequality and compare them with other countries, in particular the USA. First, we find that the majority of the increase in earnings inequality in Italy (62%) is due to an increase in the variance of average earnings between firms and only about 38% is due to increased variance within firms. This is very similar to the results found for the US (Song et al. 2019). Second, we decompose the between-firm variance into the between-sector variance and the between-firms-within-sector variance. We find that in Italy the rising between-sector variance explains approx. 42% of the overall increase in earnings dispersion, with the between-firm-within-sector component playing only a small role. This is in stark contrast to the US where the contribution of the between-sector variance to the overall growth in earnings dispersion is minimal and the majority of the growth of inequality is a between-firm-within-sector phenomenon.
I use a unique data set containing microdata harmonised across the EU member states in order to compare the size of sector wage premiums in different European countries. My main finding is that in countries where the main level for wage bargaining is the sector, the dispersion of wages across sectors after controlling for detailed worker and job characteristics is substantially smaller than in countries where wage bargaining occurs predominantly at the firm level. This is surprising given that sector-level bargaining implies equalising wages only for each worker type within industries. I show that the countries with relatively small sector wage premiums also tend to have greater informal coordination of wages across sectors achieved via pattern bargaining. It seems that bargaining at sector level is a necessary precondition to greater coordination of wage setting.
Work in progress:
”Globalisation, Firm-level Volatility and the Erosion of Collective Bargaining ”
joint with Sarah Schroeder
"Lifetime Income Inequality Within and Between Provinces in Italy"