Workers' Flows and Real Wage Cyclicality

This study investigates real wage cyclicality in Portugal for the years of 1986-98, addressing the heterogeneity in wages responses to aggregate labor market conditions for workers' hirings and separations. The results exhibit a moderate procyclical behavior of real wages for continuously employed workers, in particular, for job stayers. For workers' accessions a strongly procyclical behavior in wages was observed, which is consistent with the idea that entry wages are much more procyclical than current wages. This empirical evidence suggests that even micro-data estimates of real wage cyclicality may conceal a strong procyclical wage behavior, when heterogeneity on wages responses to aggregate conditions between employed workers and hirings and separations is not taken into account.

Wages and the risk of displacement

In this paper a simultaneous-equations model of firm closing and wage determination is specified in order to analyse how wages adjust to unfavorable product demand shocks that raise the risk of displacement through firm closing, and to what extent an exogenous wage change affects the exit likelihood. Using a longitudinal matched worker-firm data set from Portugal, the estimation results suggest that, under the existence of noncompetitive rents, the fear of job loss leads workers to accept wage concessions, even though a compensating differential for the ex ante risk of displacement might exist. A novel result that emerges from this study is that firms with a higher incidence of minimum wage earners are more vulnerable to adverse shocks due to their inability to adjust wages downward. Indeed, minimum wage restrictions were seen to increase the failure rates. JEL Classification: J31, J65concessions, displacement risk, Wages

Wages and the Risk of Displacement

In this paper a simultaneous-equations model of firm closing and wage determination is developed in order to analyse how wages adjust to unfavorable shocks that raise the risk of displacement through firm closing, and to what extent a wage change affects the exit likelihood. The results show that the fear of job loss generates bargaining concessions instead of compensating differentials. A novel result that emerges from this study is that firms with a higher incidence of minimum wage earners are more vulnerable to adverse demand shocks due to their inability to adjust wages downward. In fact, minimum wage restrictions were seen to increase the failure rates.

Earnings Losses of Displaced Workers: Evidence from a Matched Employer-Employee Data Set

This paper examines the long-term earnings losses of displaced workers in Portugal, using a nationally representative longitudinal linked employer-employee data set. The results show that four years after displacement the earnings of displaced workers remain around 9% (women) to 12% (men) below their counterfactual expected levels. The post-displacement earnings losses are mainly associated with the loss of tenure within the firm and, to a lesser extent, to the loss of sector-specific features. Furthermore, workers who experienced a spell of nonemployment are the most affected by job displacement. Finally, this study points to the importance of controlling for employers' characteristics in this type of wages-dynamic analysis, since there are systematic differences in earnings between displaced and non-displaced workers that stem from differences in firm characteristics. Ignoring them may confound the evaluation of the earnings losses.

Plant Turnover and the Evolution of Regional Inequalities

Understanding the evolution of earnings inequality is a major research topic with obvious policy implications. While there is widespread belief that institutions are largely responsible for the limited rise in inequality in some European countries, it is also recognised that little or no growth in inequality could be the outcome of market forces alone. However, the role of these market forces in different institutional environments is still not entirely understood. Is the small growth in inequality at the country level reflecting small increases in inequality within and between groups or is it the result of large offsetting changes in different components? Using a large longitudinal matched employer-employee dataset we produce several measures of within and between groups inequality in Portugal for the 1986-1998 period. We focus our attention on changes in the returns to observable characteristics (gender, age and education) of workers and test the hypothesis that these changes reflect developments in the labour market. However, we depart from previous research by shifting focus from the supply side to the demand side of the labour market. Drawing on the results of the by-now large literature on plant turnover we investigate the link between plant entry and exit and changing returns to observable worker characteristics. We argue that Portugal is an interesting case study because, despite very tight regulation and a centralised wage setting system, the level and changes of earnings inequality in recent years make the Portuguese case akin to the US and UK cases rather than to other European cases that share with Portugal similar labour market institutions. Furthermore, high firing costs have previously been identified as the cause for a larger share of employment adjustment occurring in Portugal through plant openings and closings as an alternative to the expansion and contraction of continuing plants. Our analysis is done at the regional level - 28 regions in mainland Portugal (NUTS III) are considered. The advantages of working at the regional level are twofold. First, data for all regions come from the same source - the Personnel Records - which eliminates all issues of comparability that plague many studies dealing with international comparisons. Second, regional comparisons within the same country guarantees a common institutional background which is appropriate given our focus on the role market forces play in shaping patterns of changing earnings inequality. Personnel Records are an administrative survey administered by the Ministry of Employment which is mandatory to all plants with at least one wage earner. Data reported by respondents include characteristics of the plant (location, industry and size), the firm they belong to (location, industry, total employment, annual sales and legal status) and each worker in the plant. Reported worker characteristics include gender, age, education, skill, tenure, earnings and weekly hours of work). Because each plant is assigned a unique invariant identifier, plants can be followed across waves and entries and exits can be identified. On average, the data contains information on 200 thousand plants and 2 million workers per year.

Real Wages and the Business Cycle: Accounting for Worker and Firm Heterogeneity

Using a longitudinal matched employer-employee data set for Portugal over the 1986-2005 period, this study analyzes the heterogeneity in wages responses to aggregate labor market conditions for newly hired workers and existing workers. Accounting for both worker and firm heterogeneity, the data support the hypothesis that entry wages are much more procyclical than current wages. A one-point increase in the unemployment rate decreases wages of newly hired male workers by around 2.8% and by just 1.4% for workers in continuing jobs. Since we estimate the fixed effects, we were able to show that unobserved heterogeneity plays a non-trivial role in the cyclicality of wages. In particular, worker fixed effects of new hires and separating workers behave countercyclically, whereas firm fixed effects exhibit a procyclical pattern. Finally, the results reveal, for all workers, a wage-productivity elasticity of 1.2, slightly above the one-for-one response predicted by the Mortensen-Pissarides model.wage cyclicality; hires; firm-specific effects; compositional effects; labor productivity

Real Wages and the Business Cycle: Accounting for Worker and Firm Heterogeneity

Using a longitudinal matched employer-employee data set for Portugal over the 1986-2005 period, this study analyzes the heterogeneity in wages responses to aggregate labor market conditions for newly hired workers and existing workers. Accounting for both worker and firm heterogeneity, the data support the hypothesis that entry wages are much more procyclical than current wages. A one-point increase in the unemployment rate decreases wages of newly hired male workers by around 2.8% and by just 1.4% for workers in continuing jobs. Since we estimate the fixed effects, we were able to show that unobserved heterogeneity plays a non-trivial role in the cyclicality of wages. In particular, worker fixed effects of new hires and separating workers behave countercyclically, whereas firm fixed effects exhibit a procyclical pattern. Finally, the results reveal, for all workers, a wage-productivity elasticity of 1.2, slightly above the one-for-one response predicted by the Mortensen-Pissarides model.wage cyclicality, hires, firm-specific effects, compositional effects, labor productivity

Immigrants at New Destinations: How They Fare and Why

Using matched employer-employee data, we identify the determinants of immigrants’ earnings in the Portuguese labor market. Results previously reported for countries with a long tradition of hosting migrants are also valid in a new destination country. Two-thirds of the gap is attributable to match-specific and employer characteristics. Occupational downgrading and segregation into low-wage workplaces are two major causes behind the wage gap.immigrants' earnings, workplace concentration of immigrants, matched employer-employee data

Earnings Losses of Displaced Workers: Evidence from a Matched Employer-employee Data Set

This paper examines the long-term earnings losses of displaced workers in Portugal, using a nationally representative longitudinal linked employer-employee data set. The results show that four years after displacement the earnings of displaced workers remain around 9% (women) to 12% (men) below their counterfactual expected levels. The post-displacement earnings losses are mainly associated with the loss of tenure within the firm and, to a lesser extent, to the loss of sector-specific features. Furthermore, workers who experienced a spell of nonemployment are the most affected by job displacement. Finally, this study points to the importance of controlling for employers' characteristics in this type of wages-dynamic analysis, since there are systematic differences in earnings between displaced and non-displaced workers that stem from differences in firm characteristics. Ignoring them may confound the evaluation of the earnings losses.Displacement, earnings losses determinants, firm characteristics

Market Power, Dismissal Threat and Rent Sharing: The Role of Insider and Outsider Forces in Wage Bargaining

One of the predictions of the insider-outsider theory is that wages will be higher in sectors (firms) with high labor adjustment costs/high turnover costs. This prediction is tested empirically in this study, applying an insider-outsider model to a longitudinal panel of large firms in Portugal. The results revealed that firms where insider workers appear to have more bargaining power tend to pay higher wages. In particular, we found that the threat of dismissal acts to weaken insiders' bargaining power and, consequently, to restrain their wage claims. Moreover, the results also showed that real wages are downward rigid in the Portuguese labor market.