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

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