Who are the insiders? : wage setting in Spanish manufacturing firms

This paper analyzes the wage formation process in Spain, taking into account the effect of the institutional change caused by the creation of low-firing-cost, fixed-term labor contracts. An insider-outsider model which assumes that the interests of workers under these contracts are disregarded in wage bargains is set up and tested. The estimation of a wage equation for a sample of large spanish manufacturing firms yields an estimate of the insider weight and confirms that an increase in the proportion of fixed-term employees increases insiders' wage