WORKING PAPER NO. 73 The Effect of Firm-Level Contracts on the Structure of Wages: Evidence from Matched Employer-Employee Data

In many European countries firms can either pay wages according to an industry-wide contract, or negotiate a firm-specific contract. Using a large matched employer-employee data set from Spain, we find that wages set under firm-specific contracting are about 10 percent higher than under industry-level contracts. At the employee level, the premium is similar for men and women, but is higher for more highly skilled workers. At the establishment level, we compare average wages under firm-level and industry-wide contracting, controlling for the propensity to negotiate a firm-specific contract. Again, the premium is higher at workplaces with higher average wages. Although we cannot decisively test between alternative explanations, workers with firm-specific contracts have significantly longer job tenure, suggesting that the premium is at least partially a non-competitive phenomenon. JEL: J31, J51 *We thank Nicole Fortin, Thomas Lemieux, and participants in the Berkeley Labor Lunch for comments and suggestions. 1The legal framework for labor relations in Spain is set out in the Workers ' Statute of 1980. OECD (1994) presents a detailed description of the extent and structure of collective bargaining in all OEC