The effect of firm-level contracts on the structure of wages: evidence from matched employer-employee data
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In Spain, as in several other European countries, sectoral bargaining agreements are automatically extended to cover all firms in an industry. Employers and employees can also negotiate firm-specific contracts. We use a large matched employer-employee data set to study the effects of firm-level contracting on the structure of wages. We estimate conventional wage determination models and a richer set of models that control for the characteristics of coworkers and the probability the workplace is covered by a firm-level contract. Our estimates suggest that firm-level contracting is associated with a 5-10 percent wage premium, with larger premiums for more highly paid workers. Although we cannot decisively test between alternative explanations for the firm-level contracting premium, workers with firm-specific contracts have significantly longer job tenure, suggesting that the premium is at least partially a noncompetitive phenomenon.