Equalizing Wage Differences and Bargaining Power: Evidence from a Panel of French Firms

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1 DISCUSSION PAPER SERIES IZA DP No. 582 Equalzng Wage Dfferences and Barganng Power: Evdence from a Panel of French Frms Perre Cahuc Chrsan Ganella Domnque Goux André Zylberberg Sepember 2002 Forschungsnsu zur Zukunf der Arbe Insue for he Sudy of Labor

2 Equalzng Wage Dfferences and Barganng Power: Evdence from a Panel of French Frms Perre Cahuc CNRS-EUREQua, Unversé Pars 1, CREST, CEPR and IZA Bonn Chrsan Ganella Drecon de la Prévson, Mnsère de l Econome e des Fnances, Pars Domnque Goux INSEE, Dvson Emplo André Zylberberg CNRS-EUREQua, Unversé Pars I Dscusson Paper No. 582 Sepember 2002 IZA P.O. Box 7240 D Bonn Germany Tel.: Fax: Emal: za@za.org Ths Dscusson Paper s ssued whn he framework of IZA s research area Evaluaon of Labor Marke Polces and Projecs. Any opnons expressed here are hose of he auhor(s) and no hose of he nsue. Research dssemnaed by IZA may nclude vews on polcy, bu he nsue self akes no nsuonal polcy posons. The Insue for he Sudy of Labor (IZA) n Bonn s a local and vrual nernaonal research cener and a place of communcaon beween scence, polcs and busness. IZA s an ndependen, nonprof lmed lably company (Gesellschaf m beschränker Hafung) suppored by he Deusche Pos AG. The cener s assocaed wh he Unversy of Bonn and offers a smulang research envronmen hrough s research neworks, research suppor, and vsors and docoral programs. IZA engages n () orgnal and nernaonally compeve research n all felds of labor economcs, () developmen of polcy conceps, and () dssemnaon of research resuls and conceps o he neresed publc. The curren research program deals wh (1) mobly and flexbly of labor, (2) nernaonalzaon of labor markes, (3) welfare sae and labor marke, (4) labor markes n ranson counres, (5) he fuure of labor, (6) evaluaon of labor marke polces and projecs and (7) general labor economcs. IZA Dscusson Papers ofen represen prelmnary work and are crculaed o encourage dscusson. Caon of such a paper should accoun for s provsonal characer. A revsed verson may be avalable on he IZA webse ( or drecly from he auhor.

3 IZA Dscusson Paper No. 582 Sepember 2002 ABSTRACT Equalzng Wage Dfferences and Barganng Power: Evdence from a Panel of French Frms In hs paper, we develop a dynamc model of frm-level barganng, along he lnes of Mannng (1993). In hs conex, we provde a frm level wage equaon ha explcly accouns for frm heerogeney. Ths wage equaon explans ner-frm wage dfferenals by dfferences n labour producvy and job urnover. More precsely, our model predcs ha he hgher he rae of job desrucon whn one frm, he hgher he compensaon of workers. We esmae our wage equaon usng mached employer-employee panel daa n he manufacurng secor, where frms are racked for fve years, beween 1988 and The emprcal esmaes, usng GMM echnques, are fully conssen wh our heorecal predcon of equalzng dfferences: workers who ake no accoun her neremporal dscouned ncome wll suppor lower wages when hey benef from lower unemploymen rsks whn her frm. In our model, wages are se o maxmze a Nash bargan creron, and accordng o he esmaors used or he ndusry we consder, we show ha workers have an average barganng power beween 0.15 and 0.25, measured on a scale gong from 0 o 1. JEL Classfcaon: J33, J51 Keywords: collecve barganng, equalzng wage dfferences Correspondng auhor: Perre Cahuc Unversé Pars 1- EUREQua Panhéon-Sorbonne Boulevard de l'hôpal Pars France E-mal: cahuc@unv-pars1.fr

4 3 I. Inroducon Unon barganng s ofen poned o as a conrbuor o mass unemploymen n France, and prmarly among he unsklled workers. Indeed, almos 90% of French workers are covered by an ndusry-level collecve barganng agreemen. However he prory n collecve barganng s o updae job descrpons and classfcaons used by all frms n he ndusry. When deals wh wages, s less concerned by he wages ha wll effecvely be pad by employers han by seng heorecal mnmum wages n he ndusry : n 70% of he ndusres hese heorecal mnma are, n fac, below he acual naonal mnmum wage (Salare Mnmum Inerprofessonnel de Crossance or SMIC). In France wage negoaons a he frm level progressvely replace negoaons a he ndusry level whnfrm barganng. In 1992, only 21% of frms have sgned an agreemen on wages wh unons or wh employees represenaves, accordng o he Wage Srucure Survey (enquêe Coûs e Srucures). However, a recen sudy showed ha n 1999 France was, wh Grea-Bran, he only EU counry where he frm was he domnan level of wage negoaons. Moreover, wh he law abou workng me reducon o 35 hours a week, an exenson of he frm-level barganng o he level of employmen and he workng condons s now observed. On he whole, here s hence no clear evdence ha unon barganng has a major effec on effecve wages and s worh esmang he consequences of collecve barganng on wages n a model ha allows us o evaluae he unons' barganng power. One can dsngush wo ypes of sudes ha have been devoed o hs ask. One ype of sudes analyzes he effec of unons on he srucure of wages by comparng compensaon of unon workers (or of employees who work n frms wh a leas one unon) wh compensaon of nonunon workers. Araï, Ballo and Skall (1996) show ha he exen of 1 See Geson Socale N 1181, November 2000.

5 4 unonzaon n he frm rases he workers wages. Unforunaely, her cross-secon esmaes do no conrol for unobserved heerogeney beween workers on he one hand, and beween frms on he oher and her resul could only reflec dfferences n ndvdual ables or n he wage polces of he frms raher han an effec of rade unons. Usng longudnal daa, Card (1996) shows ha unons rase wages more for workers wh lower levels of observed sklls. A second ype of sudes ulze barganng models beween unons and employers. Such models yeld an equaon lnkng negoaed wages o he barganng power of unons (or workers). Usng mached worker frm panel daa, Abowd and Allan (1996) esmae a barganng power for he employees n France of abou 0.4 (measured on a scale gong from 0 o 1). Ther esmae depends on he opporuny cos of he workers, whch hey consruc wh mcrodaa. Van Reenen (1996) suded he relaonshp beween nnovaon and wages on Brsh daa and also found a sgnfcan elascy of wages wh respec o rens. Usng dfferen nsrumenal varables, Chrsofdes and Oswald (1992) and Blanchflower e al (1996) obaned a much lower value of hs elascy, bu sll sgnfcanly dfferen from zero. In hs paper, we adop he second ype of approach, ha we enrch by focusng on he dynamcs of he labor relaon. We nvesgae and esmae a wage equaon derved from a dynamc barganng model, nspred by Mannng (1993), n whch heerogeney across frms s nroduced. The dynamc approach leads o a smple srucural frm-level wageseng equaon where he basc parameer of he workers barganng power s presen wce. Accordngly hs allows us o evaluae he robusness of our resuls. The second new feaure comes from he panel daa we used, whch s a rch combnaon of several sources. In parcular, our daa allow us o conrol for frm-specfc effecs and for he heerogeney of sklls whn frms. We show ha he workers have an average barganng power of abou 0.2, whch s close o he esmae provded by Abowd and Lemeux (1993) for Canada.

6 5 Thrd, our dynamc barganng model yelds a rcher wage equaon han he usual sac one and leads o he followng predcon: he hgher he rae of job desrucon whn one frm, he hgher he aggregae compensaon of workers. Our emprcal esmaes are fully conssen wh hs predcon of equalzng dfferences (Murphy and Topel, 1987): because workers ake no accoun her ner-emporal dscouned ncome, unons wll accep lower aggregae wages when he workers (or more precsely he majory of workers) benef from lower unemploymen rsks (ha s when he frm operaes n a more favorable envronmen, n whch he rsk of lay offs decreases for he majory of jobs). Consequenly, dependng on he dosyncrac shocks faced by each frm, leadng o dfferen levels of job desrucon, each one wll carry ou a dfferen wage polcy. Our resuls hence show ha dfferences n job desrucon raes may parly explan he nerfrm wage dfferences emphaszed by several recen sudes whch also ake no accoun unobserved characerscs (Abowd, Kramarz and Margols, 1999, Goux and Maurn, 1999). Our sudy s organzed as follows. In secon II, we presen a dynamc model of collecve barganng, along he lnes of Mannng (1993) for whch we consder a non symmerc equlbrum a he frm level. Secon III descrbes our daa sources. In secon IV, we dscuss he economerc esmaes of our frm-level wage equaon.

7 6 II. A dynamc model of collecve barganng wh heerogeneous frms Models of frm-level barganng used o esmae wage equaons are usually sandard spo marke models of quas-ren dvson (Brown and Ashenfeler (1986) or Blanchflower, Oswald and Sanfey (1996)). However, emprcal sudes hghlghed he mporance of he process of job creaon and job desrucon whn frms (Abowd, Corbel and Kramarz, 1999) and we can suspec ha he hsory of labor force flows whn frms play a role n wage seng. Ths s llusraed, for nsance, by Beaudry and D Nardo (1991) who esmaed a dynamc model of mplc conrac and found ha wages are much more sensve o unemploymen condons han mos prevous sudes dd. Consderng ha he model of collecve barganng s sll he mos relevan n he case of France, we hence negrae he flows of enry and ex n a dynamc model of quas-ren dvson, along he lnes of Mannng (1993) and Cahuc and Zylberberg (1996). Conrary o Mannng, who solves hs model n a symmerc equlbrum whou heerogeney, we derve a frm-level wage equaon ha explcly accouns for frm heerogeney. Moreover, we show ha he model leads o he same wage equaon wheher workers and frm bargan on wage only or on wage and employmen. Accordngly, conrary o Mannng, whose emprcal sudy uses macroeconomc daa, we keep he mcroeconomc dmenson of he model and we use panel daa o esmae an «exac» frm-level wage equaon. We assume ha workers bargan only over wages accordng o he «rgh-o-manage» model. Frms decde unlaerally he level of employmen, afer wages are se by collecve barganng. Tme s dscree and, a each dae, he economy works accordng o he followng sequence of decsons (see Appendx 1) : a. A he end of each producon perod (), echnologcal shocks occur and an exogenous proporon ( q ) of employees of frm are fred.

8 7 b. A he begnnng of nex perod (+1), each frm and s employees bargan over he curren wage and he agreemen obaned s supposed o hold for a sngle perod. c. Then, each frm deermnes s level of employmen ( L +1 ). Ths adjusmen s made eher by hrng workers f L + ( q ) L, or by frng workers f L + < ( q ) L d. Producon occurs, oupu s sold, wages are pad and new shocks occur a he end of perod (+1). We wll now urn o he precse descrpon of frms and workers behavor.,, )LUPV 7KH SURILW PD[LPLVDWLRQ There s a connuum of frms n he economy of densy 1 on [0,1]. For now, we do no make any assumpon abou he marke of goods, whch can be eher perfecly or mperfecly compeve. We denoe by R( A L ) he revenue funcon of frm (), where L s he level of employmen and ( A ) a parameer of producvy ( R s ncreasng and concave). A each perod, frms face wo ypes of echnologcal shocks : shocks on he producvy parameer ( A ) and dosyncrac shocks on a ceran proporon ( q ) of jobworker pars. When a job-worker par experences such an adverse echnologcal shock becomes unproducve a he end of he perod and separaes. Accordng o he sequence of decsons prevously defned, frms deermne he level of employmen afer he wage deermnaon process. Le ρ denoe he ax wedge (ncludng 2 As seen n Appendx 2, devoed o he case of barganng on wage and employmen, hs assumpon s no essenal o derve he wage equaon we wll use for our esmaons. 3 We could easly re-wre our model wh capal. I does no change he forhcomng developmen bu complcaes he presenaon (see Cahuc and Zylberberg, 1999).

9 8 boh employer-pad and employee-pad payroll axes) and le w be he ne real wage n frm. The frm maxmzes s curren prof π. Max π = R( A L ) ρ wl (1) L The frs order condon of (1) defnes a labor demand funcon L ( ρ w ) such ha: R = L AL w 0 A ( ) ρ (2) 7KH WHFKQRORJLFDO VKRFNV Boh ypes of echnologcal shocks ( A ) and ( q ) are assumed exogenous. We decompose he producvy parameer ( A ) n wo componens: a emporal componen of echncal progress, common o all frms n he economy, and an ndvdual componen whch represens a specfc shock. So he producvy parameer can be wren A = φ + η. We also assume ha ( η ) and ( q ) are random varables whch dsrbuon s dencal across frms and whch are known only a he begnnng of he perod before wages are negoaed. The wo ypes of shocks can of course be correlaed whn one perod, bu we assume ha hey are ndependen across me. So boh ( η ) and ( q ) are d. Ths s no necessarly he case for he producvy ( A ) make any hypohess on he evoluon of he echncal progress ( φ )., snce we do no 7KH MRE GHVWUXFWLRQ UDWH We solve he model n he case L + ( q ) L. In our model mples ha, gven he 1 1 shocks on job-workers pars ( q ) and workers ancpaons on he producvy parameer ( A ), nsders who sayed n he frm negoae he wages so ha hey keep her job for a

10 9 leas one perod. Ths condon requres ha he producvy shocks on ( A ) are no srongly adverse or, equvalenly, ha he exogenous separaon rae q s suffcenly hgh. Ths s a reasonable assumpon n he case of a growng economy, for whch he echncal progress φ s growng a a suffcen rae. Ths assumpon s even more relevan n he case of a growh hrough creave desrucon (Aghon, How, 1992). Furhermore our daa cover he perod , whch s a perod of expanson, where dsmssals are more lkely o be caused by exogenous shocks raher han oo hgh wages. Ths assumpon could however sll be challenged n he case of an economy n recesson, bu recen emprcal fndngs suppor s general valdy. The sudy of Abowd, Corbel and Kramarz (1999) on French daa shows frs ha here s consderable smulaneous hrng and separaon, and second ha when a frm s shrnkng, he adjusmen of employmen s made by reducng enry and no by ncreasng he separaon rae. In fac, he French labor marke was characerzed by a srong ncrease n shor erm conracs n he lae 80 s. As only a few proporon of hese conracs are exended n long erm conracs, hs developmen conrbued o rase he proporon of workers who leave he frm for exogenous reasons, or more precsely for oher reasons han he economc suaon of frms. Fnally, our daa suppor hs heorecal assumpon. Frs, almos all he frms have a srcly posve hrng rae, for all he years of observaon. Second, we fnd no correlaon beween he rae of dsmssals and he varaon of employmen n our panel (see secon III).,, :RUNHUV 4 Ths assumpon has an emprcal suppor an emprcal suppor : Goux and Maurn (1999) show ha ner-ndusry wage dfferences are no srucural. 5 In he neghbourhood of equlbrum, when employmen s growng a a consan rae, we can even have he condon L > + L. 6 1 The average growh rae n France was 2.8% over he perod

11 10 There s a connuum of ndvduals n he economy of densy N on [0,1]. We assume perfec homogeney and mobly of he labor force : all ndvduals are dencal and can apply for any job n any frm whou search coss. Furhermore, agens are rsk-neural, have an nfne lfe-me horzon, and supply one un of labor a every dae. Each worker employed n frm s pad he ne real wage w and, as explaned before, loses hs job a he end of perod wh a probably ( q ). In hs case, he can mmedaely seek a new job and s employed a perod +1 wh probably a +1. Under hese assumpons we can defne he value funcons of he employees and he unemployed workers. The expeced revenue of an employee n he frm a he begnnng of he perod can be wren as follows : e u V = w + β [ q ( a V + ( 1 a ) V ) + ( 1 q ) V ] (3) where β s he dscoun facor, V e +1 +1, V u he expeced value of beng employed elsewhere a he expeced value of beng unemployed a +1 and V +1 beng employed nex perod n he frm. he expeced value of Accordng o our assumpon on he process of he shocks ( A ) and ( q ), expecaons abou fuure wages and fuure job desrucons are unform across frms. Hence he expeced value of beng employed n he same frm nex perod ( V +1 ) s equal o he expeced value of beng employed elsewhere ( V e +1 ). 7 We hus suppose ha beng fred s no a sgnal of he poor qualy of he worker. Noce however ha s possble o solve and esmae he model whou makng hs assumpon. We have chosen a smple represenaon of expecaons. We could have kep heerogeney n he ancpaed value funcons of beng employed, bu n fac s no worh dong so, snce he developmens are more complcaed and he resuls almos unchanged. Ths assumpon can be

12 11 Le z denoe he level of real unemploymen benefs and (1 η + 1 ) denoe he probably ha a worker who s unemployed hs perod remans unemployed nex perod. The value of beng unemployed a dae, V u, s hen gven by u e u V = z + β ( η V + ( 1 η ) V ) (4) ,,,QVLGHUV DQG ILUPV REMHFWLYH IXQFWLRQ Wages are se a he begnnng of each perod afer a barganng process a he frm level beween employers and unons. We have seen n he prevous secon ha nsders who negoae keep her job durng he perod. I s herefore useless for hem o have an employmen objecve durng he negoaons. When negoaons break down, workers qu he frm and have some employmen opporunes elsewhere wh he same probably a as a worker who has jus been fred. The expeced uly of workers afer negoaons have been broken off s g e u V = a V + ( 1 a ) V (5) The fall-back payoff of workers s hen V g and her objecve funcon n he Nash g creron s smply he dfference ( V V ). Snce here s no on-he-job search n he jusfed by several emprcal sudes abou ner ndusry wage dfferenals : Abowd, Kramarz and Margols (1999) or Goux and Maurn (1999) have shown ha hese dfferenals reflec prmarly he dfferences n measured and unmeasured labor qualy. The average varaon n wages for workers who swch ndusres does no exceed 3%. 8 In fac he erm z represens no only unemploymen benefs, bu also all replacemen ncome and he non moneary uly or dsuly of beng ou of work. I s herefore closer o an opporuny cos. 9 The probably of beng reemployed can be dfferen for shor erm or long erm unemployed. However unemploymen duraon has no effec on workers producvy. 10 The fall-back pon s never reached and negoaons are always successful.

13 12 model, s no n he workers neres o qu her employers; f hey do so hey wll only oban V g whch s always lower han V. Under he assumpon of consan and exogenous real neres rae r, he expeced prof of each frm, denoed Π, can be wren Π 1 = ( π ) + Π 1 + r + 1 (6) where π s he maxmum of he curren prof defned n secon II.1 by equaon (1). When negoaons break down, he suaons of workers and frms are asymmerc: workers who leave he frm mmedaely seek anoher job, whle for frms s mpossble o fre he workers on srke and o replace hem mmedaely a dae. In he case of srke, frms produce nohng and curren prof π s herefore zero. However, forhcomng profs are no modfed because frms can hre workers for he nex perod whou adjusmen coss. Under hese assumpons, he fall-back poson of each frm s Π o, 1 = Π r and s objecve funcon s he curren prof ( ), π = Π Π 0. II.4. Whn frm wage deermnaon We assume ha he oucome of he negoaons s gven by he maxmzaon of a Nash barganng program. Workers are raonal and know ha frms are on her labor demand curve. The ssue of negoaons s gven by he followng program : Max w [ R(A L ( ρ w )) - ρ w L ( ρ w ) ] 1 γ g [V V ] γ (7) 11 Ths s jusfed by nsuonal delays or legal resrcons on frng.

14 13 where γ s he barganng power of unons (0<γ<1). Usng equaon (2) and he «envelope heorem» he frs order condon mples : V g γ 1 R( A L ) V = ρw 1 γ ρ L (8) I should be noed ha equaon (8) could also be derved n he case of an effcen conrac model, where unons also bargan over employmen (see Appendx 2). Denong w + χ = V V g, equaon (8) gves afer some rearrangemen he expresson of he wage se n frm as an mplc funcon of he exogenous parameers and of he expeced values funcons of dae +1. w γ R( A L ) = + ( γ 1 ) χ (9) ρ L The erm χ can be rewren usng relaons (3), (4) and (5) e u e u χ = z + β( 1 q( 1 a+ ) η + ) V + V 1 1 ( 1 + 1) - a( V - V ) (10) In order o elmnae he dfferences of values funcons V e u V and e V V u , we use e g e u equaon (5), whch gves V V = ( 1 a )( V V ), and we ake he expecaon value n equaon (8). We oban : 1 e g γ RAL ( ) γ ALP V V = w d w 1 γ = ρ 1 0 L γ ρ (11) 12 Emprcally, we wll consder a shor perod of me, so ha γ can be consdered consan over me. We wll challenge he hypohess ha γ s consan across frms by runnng esmaons for dfferen ndusres. 13 The second order condon holds f γ s no oo hgh,.e. f γ < ε Lw,.( ρ wl / ( R( AL) ρ wl)) where ε L, w s he wage elascy of labour demand. Wh our daa we fnd he condon γ < 2ε L, w whch s usually vald, snce several emprcal sudes show ha hs elascy s around 0.5 (see Dormon 1993).

15 14 where ALP s he average labor producvy n he economy and w he average ne wage n he economy a dae. Fnally χ s deermned by (10) and (11). The wage equaon n each frm can be expressed n he followng way : RAL ( ) a ALP 1 η 1 ALP w = γ + (1 γ) z + γ ( w) γβ( q) E w + 1 Ω ρl 1 a ρ 1 a+ 1 ρ+ 1 (12) where E denoes he expecaon operaor condonally on Ω, he se of nformaon avalable a dae. The wage w s an mplc soluon of equaon (12), as he level of employmen (and hen he level of producvy) depends on wages. However equaon (12) shows ha he negoaed wages depend on he one hand on frm specfc varables, such as producvy and he rae of job desrucon, and, on he oher hand, on exernal parameers (a he frm level) such as unemploymen benefs, aggregae producvy, aggregae labor cos and he unemploymen rae. Gvng a specfc form o R( A L ) allows o explc w. In he smple case of a Cobb- Douglas producon funcon, R( A L ) = ( A L ) α, we can derve he explc wage equaon. 1 γ 1 α a 1 η 1 + w = α z + γ w βe q w+ 1 Ω α γ α γ 1 a 1 a+ 1 (13) Snce γ<α<1, wages are ncreasng wh he barganng power of unons ( γ ). They are also ncreasng wh he unemploymen benefs, he average wage n he economy w and 14 The aggregae level of unemploymen n he economy has an nfluence on he negoaed wage hrough he probables of fndng a job. I s easer o see hs pon by wrng he equlbrum

16 15 wh he probably of fndng anoher job ( a ) : n fac all hese parameers gve he unemployed people a hgher fall-back poson n he negoaon. On he conrary, wages are decreasng wh he average ancpaed wage a dae (+1), because hgher wages opporunes n he fuure ncrease he value of beng employed oday, and also decreasng wh he parameer 1 η 1 a whch measures he dscrmnaon agans long erm unemployed people. Taxes are no neural n our model, snce an ncrease n he ax wedge reduces smulaneously profs, and hence decreases ne negoaed wages, and he level of employmen, whch leads o an ncrease n producvy. In he case of he Cobb-Douglas producon funcon, he wedge s neural on he ne wage, because boh effecs exacly compensae. The mos remarkable resul concerns he posve mpac of he rae of job desrucon ( q ) on negoaed wages. Workers nend o maxmze her dscouned revenues and o manan he mark-up of he value of employmen V over g V consan. Hence he hgher he rsk of losng one s job, he hgher he wage o compensae for hs rsk. Pung n anoher way, workers, who ake no accoun her neremporal dscouned revenue, wll accep lower wages when hey benef from lower unemploymen rsks 15 The wage barganng mechansm leads o «equalze dfferences» beween frms.,,, 7KH 'DWD III.1. The mergng of hree panels a he frm level of employmen flows (see Cahuc and Zylberberg, 1996). Wages are of course decreasng wh he unemploymen rae. 15 Ths apply o he common rsks faced by he majory of workers and no he specfc ndvdual rsks (whch are no presen n our heorecal model). 16 We can observe ha when workers bargan over employmen -see appendx 2- and agree o a wage decrease n reurn for a lower rae of dsmssals, hey behave exacly as he model predcs.

17 16 The daa are derved from he mergng of hree annual surveys by he Insu Naonal de la Sasque e des Eudes Economques (INSEE) and he Drecon de l Anmaon de la Recherche des Eudes e des Sasques (DARES), wo man governmenal sascs agences. We mached he Occupaonal Srucure Survey (Enquêe sur la Srucure des Emplos, ESE), he Monhly Worker Movemen Declaraon (Déclaraons de Mouvemens de Man-d Oeuvre, DMMO) and he Survey of Corporae Tax Reurns (Bénéfces Indusrels e Commercaux, BIC). The sample conans abou 1,000 frms, from he prvae manufacurng secor, wh a leas 50 employees. The sample s balanced over he perod , so ha he number of avalable observaons s around 5,000. For each frm and for each year, he sample covers he daa ems ha are sandard n surveys of hs knd : value added, urnover, oupu, wage bll (oal labor coss) and he occupaonal srucure usng a 4-dg sandardzed classfcaon of occupaons. From hs classfcaon, we use only sx posons : (1) managers and professonals; (2) echncans and supervsors; (3) sklled clercal workers; (4) unsklled clercal workers; (5) sklled manual workers; and (6) unsklled manual workers. One of he neresng feaures of our panel s ha provdes he number of employees fred and makes possble o dsngush (1) qus; (2) endngs of shor-erm conracs (Conras à Durée Déermnée, CDD); (3) conracs ermnaed for economc reason or for cause; and (4) reremens, early reremens and oher reasons. For each frm, he job desrucon rae s calculaed as follows : we sum he rae of lay-offs (redundancy and dsmssals) and he rae of desrucon of shor-erm conracs. Sascally dsmssals accouns only for a small par of he job ermnaon. There are more lkely o lead o new hrngs, bu hs dsncon s no relevan n our heorecal model : wha s mporan for In hs case he probably of beng fred becomes endogenous and s smulaneously se wh wages. 17 We are graeful o Maranne Pauche who kndly gave us he access o he orgnal mached daa source she creaed on he bass of a panel pu ogeher by S. Lagarde, E. Maurn and C. Torell (Lagarde, Maurn and Torell, 1995). We supplemened hs panel wh oher ndusral and geographcal varables.

18 17 an nsder s hs own rsk of loosng hs job (and hs rsk of dsmssal could be hgher n some frms of for specfc jobs). Volunary qus are no consdered as job desrucon and s herefore mplcly assumed ha such exs lead o new hrngs. In he model, all ndvduals are supposed dencal. Gross dfferences n average wages beween frms reflec mosly dfferences n he occupaonal srucure : a company whch employs 5 managers and 5 unsklled manual workers wll surely have a hgher wage bll han anoher one whch employs 1 manager and 9 unsklled manual workers, even f boh unsklled manual workers and managers receve he same compensaon. To ake no accoun he «qualy» of he labor force specfc o each frm, we calculae, a each dae and for each frm, he equvalen wages for unsklled manual workers. Average producvy and labor coss are esmaed from he BIC, for he same secor as our panel,.e. manufacurng ndusres. Each year, hs survey consss of abou 26,000 companes. I makes possble o measure he average producvy and he average labor cos for he perod. Producvy s supposed o be equal o he value added per employee. Table 1 shows summary sascs for he frm-level varables used n our sascal analyss and able 2 he decomposon of varance for hese varables. I s no necessary o compue addonal macroeconomc daa such as ncome of he unemployed people and he raes of job creaons ( a ) or (η ), snce hey wll be dsappear wh he nroducon of me dummes. III.2. The rae of job desrucon 18 The French Labour Force Surveys, from 1987 o 1993, allow he esmaon of relave wages of he sx occupaonal posons denfed n each frm. Beween occupaons average wage dfferences are raher consan over me : n average, a professonal or manager earns hree mes more han an unsklled manual worker, a echncan or supervsor 1.8 me more, a sklled clercal worker 1.2 me more, a sklled manual worker 1.3 me more and an unsklled clercal worker 1.2 me less. 19 In our model, he oupu per employee would be less approprae, because he purchasng coss of nermedae consumer goods are no aken no accoun.

19 18 Summary sascs on he average rae of ex and enry of workers are repored n able 3. These sascs confrm ha when a frm reduces he number of employees, reduces he number of enres. I can also be observed ha he enry and he ex raes are hgher n frms wh ncreasng employmen han n frms wh decreasng employmen. The average value of he rae of job desrucon we consder s 10.8% over he whole perod (see able 1). I represens abou half of oal job ouflows. We do no ake no accoun qus n he defnon of he rae of job desrucon, because qus raher are an endogenous process, whch we have no consdered n our model. A smple calculaon of he Pearson correlaon coeffcen beween he rae of job desrucon whn a year and he varaon of employmen s equal o and s no sascally dfferen from zero. I s also worh nong ha he enry rae s superor o he ex rae n 80% of he cases, a fac whch suppors he nerpreaon of shocks on jobworker pars. Anoher feaure confrms our nerpreaon of ermnaons: he rae of job desrucon s no correlaed wh lagged wages. We can no herefore accep he concluson ha hgher ( q ) are synonymous wh decreasng employmen because of hgher wages. As we merge hree dfferen daabases, s clear ha our fnal panel s based owards bgger frms. The robusness of he model has been challenged by conducng esmaes by sze of frms, wh he same knd of resuls, bu are no repored here.,9 (PSLULFDO UHVXOWV We esmae n hs secon he barganng power of workers and he dscoun facor of workers from he srucural equaon (12). In order o ake no accoun he heerogeney of ndusres, whch economc suaon could be very dfferen a each perod of me, we 20 However, we could have assumed ha workers who qu her frm fnd anoher job mmedaely, and hese flows would no have had any nfluence n our model f hey occur before he wage barganng process.

20 19 sysemacally nclude dummes for he dfferen ndusres n our regressons, as well as me dummes. Ths ncluson allows us o avod he dffculy of measurng he level of replacemen ncome ( z ). I s possble o calculae an ndcaor of replacemen ncomes for unemployed people from he Labor Force Survey, bu he daa n hs survey are no very relable, and would neglec he nfluence of varous allocaons (moher s help, home help ec.). For all hose reasons seems reasonable o replace he erm ( 1 γ ) z n equaon (12) by emporal cross ndusral dummes. By he way we do no need o calculae eher he raes of ex from unemploymen η and a. Fnally equaon (12) becomes :. R 1. ALP + w = c+ γ + βγ q w 1 + * s+ u + δ δ (14) ρ L ρ+ 1 where c s a consan, δ a me dummy, δ s a dummy for he ndusry s and u he error erm, assumed uncorrelaed hrough me. The coeffcens (γ) and (β) are hen denfed only by me-varyng and ndvdual -varyng ndependen varables. The barganng power (γ) appears wce n equaons (14). A frs sraegy o esmae hs parameer would conss n fxng arbrarly a value of he dscoun facor (β) compable wh he real neres rae on fnancal markes. Ths rae s approxmaely consan around 5% over he perod , gvng a value for β of Bu s no obvous ha workers have an easy access o fnancal markes and ake he same neres rae no accoun. They could be eher more or less paen han capal owners. We hence esmae (14) whou gvng an a pror value o he dscoun facor. In he heorecal model, he labor producvy s endogenous and depends on he wage se whn he frm. In a frs sep we gnore hs source of endogeney n our esmaons and INCORPORER 22 A he level of he French nomenclaure NAP 40, whch s presened n able We have n fac ransformed our varables so ha her average value by ndusres cross me s equal o zero.

21 20 run Leas Square Esmaes, as a benchmark. In a second sep we run GMM esmaes, whch ake no accoun he sources of poenal bases. a) OLS, whn and FGLS esmaes The OLS esmae of equaon (14) confrms he ren-sharng mechansm and shows ha he barganng power of workers s around 0.22 (able 4, column 1). The mos srkng resul s however he srong valdaon of he equalzng wage dfferenals predcon snce he sgn of he esmaor γβ s posve and he coeffcen s sgnfcan (row 2). Wages are an ncreasng funcon of he rae of job desrucon. The esmaed coeffcen γβ s relavely low, abou 0.14, whch gves a small value of he dscoun facor ( β s slghly greaer han 0,6). I s however possble ha some key frm-level deermnans of wages may be correlaed wh he ndependen varables. If ha s so, OLS esmaes are based. Theorecally, one can magne ha he shocks are perssen ( A = φ + α + υ ) whch also nduces ha here s a frm specfc componen n he deermnaon of wages. Therefore we performed wo specfcaon ess : he Fscher es for he exsence of an ndvdual effec and he Hausman es whch compares «beween» and «whn» esmaes, n order o check wheher he ndvdual effec s correlaed wh he explanaory varables or no. Resuls are repored n able 4. These ess show here exs ndvdual effecs and ha hese ndvdual effecs are fxed effecs. The whn frm and frs dfference esmaors enable us o ge rd of hs bas. Once we ake frm specfc polcy no accoun, he barganng power of workers (γ) s smaller and flucuaes around 0.16 and 0.18 for whn, frs dfference and long dfference esmaors (able 5). I s worh nong ha he esmaes of (γ) are almos smlar. However hs s no

22 21 he case for β (=γβ / γ ), whch s greaer han one n he frs dfference esmaes : would mean ha agens gve more wegh o he fuure han o he presen. The effec of measuremen errors on frs dfferences esmaes s however poenally mporan and long dfference esmaor s much more sasfacory, even f no precse ( β s around 1). Anoher source of poenal bas n he prevous esmaes les n he possbly of heerogeney n he barganng power. Frs s possble ha he barganng power of workers depends on he sze of he producvy per worker, he sze of he frm or he rae of job loss. However Abowd and Allan (1996) have shown ha he frs hypohess s no conssen wh her emprcal resuls. The second mus be rejeced oo, because f we allow γ o be lnearly dependen on ( q ) or on ( L ) he correspondng coeffcen s no sgnfcan. I could also be argued ha he posve relaonshp we fnd beween wages and he rae of job desrucon s due o he fac ha frm frs layoff less effcen workers. Several smple argumens sugges o rejec hs nerpreaon : Frs, we conrol for he observed sklls n he way we compue wages. Second he raes of job desrucon for he dfferen sklls usually exhb he same evoluon whn frms. I means ha when he rsk of unemploymen ncreases ncreases for every ype of workers. Thrd, when he wage equaon (14) s esmaed only on frms wh ncreasng employmen he relaonshp sll holds. Fourh and above all, he relaonshp (14) lnks curren wages o he fuure rsk of unemploymen. So s no possble for wages o ncrease before he less producve workers are fred. 24 If we replace γ by γ γ γ = + q (respecvely 0 1 γ = γ + γ L ) he coeffcen 0 2 γ 1 (respecvely ) s no sgnfcan. γ 2

23 22 Second, he barganng power could be heerogeneous beween ndusres, snce collecve agreemens are ofen sgned a he ndusry level. Table 6 repors whn and QGLS esmaes a wo levels of aggregaon. As we only have a few number of observaons n our sample for some ndusres, we frs consder a rough decomposon n hree dfferen secors : he nermedae manufacured producs ndusres, he equpmen goods ndusres and he consumer goods ndusres. We also compue he whn and QGLS esmaes for a level of aggregaon whch corresponds o he ndusry collecve barganng agreemen. The ess show ha here are frm specfc effecs whn each ndusry, bu hey are no always correlaed o he explanaory varables (n some case he QGLS esmaes s convergen and opmal). I s que remarkable o see ha he barganng power coeffcen γ s sable across ndusres, vares beween 0.15 and 0.25, and s always sgnfcan. The coeffcen seems o be lower n mnng, seel and ferrous ndusres, n chemcals and n paper and board ndusres (abou 0.1), bu he number of frms for hese ndusres n our sample s low. The parameer β flucuaes usually beween 0.5 and 1, wh absurd values for paper and board ndusry and rubber ndusry ( β s greaer han 1, bu we do no have many frms for hese secors). Anyway hese esmaons by ndusry confrm he resul of equalzng wage dfferences and, excep for small secors, he frms we consder seem o be behave n her wage seng n a raher homogenous way across secors. Esmaons by sze of frms were also conduced, wh he same knd of resuls, bu are no repored here. b) Generalzed Mehod of Momens Esmaes 25 QGLS sands for Quas-Generalzed Leas Squares.

24 23 As we have already poned ou, especally for labor producvy, ndependen varables may be endogenous. In he heorecal model, wages, employmen, quas-ren per worker are jonly deermned, so ha he OLS esmaes, as well as he whn esmaes, of γ and γβ are poenally nconssen. Measuremen errors are anoher poenal source of bas. For example he corporae eny for whch fnancal nformaon s avalable does no always correspond o he frm nvolved n collecve barganng. Hence we have o adop he Generalzed Mehod of Momens (henceforh GMM) o esmae he model. We wre he model n frs dfferences n order o elmnae he ndvdual fxed-effec. Equaon (14) becomes, for each frm () a every dae () : R ALP + 1 w = γ. + βγ q w + d u - u wh d + = δ δ ρ L ρ GMM esmaon allows us o ake a large number of momen condons o esmae he model. Followng Arellano and Bond (1991), we use he convenenly lagged lef-hand varable as an nsrumen as well as lags of ndependen varables. We assume ha our explanaory varables are weakly exogenous, so ha he dsurbance s uncorrelaed wh srcly pas values of he regressors. We wll use hese nsrumens n levels wh a leas wo lags, and no n frs dfferences, n order o keep an addonal year of daa. Moreover, we wll use oher exogenous nsrumens o ge oher momen condons. Followng Abowd and Allan (1996), he nsrumenal varables used are he secor-based prces of mpors and prces of expors (600-headng classfcaon of ndusres, NAP600). We use also he Herfndhal ndex, whch measures he concenraon of he varous markes covered by he frm. Several sudes have n fac deeced a posve lnk beween he rensharng and he produc marke power of frms (see for example Rose, 1987). In our panel, hs ndex s correlaed wh he added value of he frm (correlaon of 0.19). We could however suspec ha he barganng power of unons s greaer n frms whch operae n less compeve ndusres. We have esed hs hypohess by specfyng n our wage

25 24 equaon a barganng power whch depends lnearly on he Herfndhal ndex. In our sample we fnd no effec of hs ndex on he barganng power, when we esmae such an equaon wh nsrumenal varables. To ake he opporuny cos of workng no accoun, we add he regonal unemploymen rae and he regonal average wage n he se of nsrumens. The rae of job desrucon could be no srcly exogenous, especally f unons also bargan over employmen (see he model n appendx 1). In hs model, he mechansm of equalzng wages sll holds, bu becomes parly endogenous : unons accep lower wages agans an ncrease n job creaon. For he job desrucon rae, we use s lagged values as nsrumenal varables, and also he lag of he urnover rae. The laer seems o be a beer nsrumen. To check he valdy of our nsrumens, we use he Sargan es of overdenfyng resrcons from he wo-sep GMM esmaor. We gve he resuls for he one-sep esmaor and he wo-sep esmaor (see able 7). For he hree ses of nsrumens he es of overdenfcaon s que sasfacory as well as he es of compably beween exogenous nsrumens and lagged explanave varables. Wh he complee se of nsrumens we oban a value of he barganng power of abou 0.19 (model c). The dscoun facor s equal o Afer correcng he frs dfferences esmaor from he endogeney and measuremen errors bas, s worh nong ha he coeffcen β becomes less han one. We rean hese values (γ=0.19 and β=0.77) as our bes esmaes. The heorecal model assumed he rae of job desrucon was exogenous. The economercs ess do no rejec hs hypohess : f we compare he values obaned wh GMM echnques and whn esmaor and f we run an Hausman-Wu es (for he global model), we can no rejec he hypohess of equaly beween hese esmaes. We fnally conduc a GMM esmaon by ndusry (able 8) and compare he resuls o he esmaes obaned by whn and QGLS esmaes (able 6). For some ndusres here are 26 γ s replaced by γ γ = + HI. γ where HI s he Herfnhal ndex. 0 1

26 25 no enough ndvduals o run a GMM procedure wh he complee se of nsrumens (chemcals ndusry and paper and board ndusry). The esmaes are very close, and he barganng power seems o be a lle hgher for he fnes level of aggregaon wh GMM esmaes. When we aggregae n hree secors γ s lower han he whn esmae for he wo sep esmaor. Fnally, he dscoun rae becomes lower han one for wood and furnures and rubber producs ndusres. And for mnng, seel work ndusres and prnng and publshng, he equalzng dfferences coeffcen γβ has ncreased, especally for prnng and publshng. The GMM esmaons by ndusres hence fully confrm he heorecal model. We fnd lle heerogeney among secors, especally for he barganng power : usually flucuaes around 0.2 whle he dscoun rae ranges approxmaely from 0.5 and o 1 (or somemes more han one). The dscoun facor of workers s usually lower han he dscoun rae on fnancal markes and jusfes he assumpon of no mposng an a pror value o hs parameer. These secor-based esmaons show ha composon effecs should no nfluence srongly our esmaon for he enre sample, and confrm ha he endogeney bas s weak. Noce fnally ha he barganng power we found s lower han he value obaned for France by Abowd and Allan (1996) and much closer o he resul found by Abowd and Lemeux (1993) for Canada (0.2 n he laer case).

27 26 V. Concluson In hs paper, we have shown ha he ren sharng mechansm can no be negleced for France. The esmaon of a srucural model of collecve barganng gves an esmaed barganng power of abou 0.2 n he manufacurng ndusres. Ths resul s conssen wh he fndngs of Abowd and Lemeux (1993) and Van Reenen (1996) on Canadan and Brsh daases. We also show how mporan s o ake no accoun frm specfc effecs and he heerogeney of sklls whn frms o avod an overesmaon of hs ren sharng mechansm. We however fnd ha here s no srong heerogeney of he barganng power across ndusres n he manufacurng secor. We have n fac conduced our esmaes for dfferen ndusres, a a level of aggregaon whch corresponds o he ndusry collecve barganng level, and sll appeared ha he barganng power flucuaes around 0.2. The second man resul of he paper s o gve an emprcal suppor o he heory of equalzng wage dfferences. When workers bargan over wages n a dynamc framework, hey face a rade-off beween he average level of wages and he rsk (a he frm level) of beng unemployed. Even n a regulaed labor marke, we fnd a compeve mechansm of compensaons. Ths resul s robus across ndusres. We hence do no fnd a srong barganng power, bu we show ha wages may be nfluenced by some nsurance mechansms: n frms where few jobs are removed, workers ge a lower wage. Alhough hey are exogenous, hese dfferences n job desrucon raes can hence be nerpreed as rsk prema whch reflec he prce o be nsured agans unemploymen rsk. Ths resul may explan ner-frm wage dfferences, whch are really frm specfc effecs and do no reflec unobserved heerogeney of workers We would lke o hank Laurence Allan, Bruno Crépon, Francs Kramarz, Guy Laroque, Parck Sevesre, and Henr Snessens for helpful commens on prevous drafs of he

28 27 paper and also he parcpans of he European Assocaon of Labour Economss meeng (Sepember 1997) and he parcpans of he Journeys of Appled Mcroeconomcs (Summer 1998). In preparng he daa we have grealy benefed from he work of Maranne Pauche. We also hank one referee for hs very helpful commens and advses.

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32 31 Appendx 1 : The sequence of decsons n each frm me Begnnng of perod () End of perod () Producon An exogenous proporon q 1 of employees are fred a he end of perod -1. 1) The agens ancpae he new values of he shocks q 2) Wages are negoaed. 3) Frms adjus he employmen. Ths adjusmen s made by hrng new workers, snce we have he condon: L ( q L ) ) As before, a proporon q of employees are fred. and A

33 32 Appendx 2 : Wage equaon n he case of an effcen conrac When unons bargan over wages and employmen ( means ha he level of employmen s one of he nsder s objecve even f hey know hey wll keep her job unl he end of he perod), he new program s gven by : g Max[ R (A L ) - w L ] [ L ( V V )] w, L ρ and he frs order condons are : 1 γ γ V g γ R( A L ) V = w 1 γ ρ L $ R γ A ρ ρ L AL w R( A L ) ( ) = w 1 γ L $ In he «effcen conrac» model, he level of employmen s hgher han n he «rgh o manage» model and wages are lower (snce he producvy s decreasng n L f R s concave). I s worh remarkng ha equaon (A1) s formally dencal o equaon (8) n he paper. The only dfference s ha frms are no more on her labour demand curve (workers are pad above her margnal producvy).

34 33 Appendx 3 : Emprcal resuls Table 1 : Summary Sascs Mean Mnmum Value Maxmum Value Real gross wage (weghed by he srucure of employmen) n consan 1980 Francs. Producvy per worker (also weghed by he srucure of employmen) n 1980 Francs. Rae of Job Desrucon Source : Panel BIC-DMMO-ESE, , Insee. Noe : Sandard Devaon n parenheses. Table 2 : Decomposon of oal varance % Beween % Whn Toal Varance Real gross wage per Worker Producvy per Worker Rae of Job Desrucon Source : Panel BIC-DMMO-ESE, , Insee.

35 34 Table 3 : Annual average raes of Enry/Ex of workers n he BIC-ESE-DMMO panel Enry rae All frms of he Toal ex rae sample Qu rae Rae of Job Desrucon Enry rae Frms wh ncreasng Toal ex rae employmen Qu rae Rae of Job Desrucon Enry rae Frms wh decreasng Toal ex rae employmen Qu rae Rae of Job Desrucon Source : BIC-ESE-DMMO panel , Insee (sample sze : 915 frms). Readng : The enry rae ncludes long erm hrng conracs (CDI) and shor-erm hrng conrac (CDD). The oal ex rae ncludes lay-offs, endngs of shor erm conracs, qus and oher exs (reremens, mlary servce, deahs...). The rae of job desrucon ( q ) we consder n he paper ncludes lay-offs and endngs of shor erm conracs and excludes volunary qus.

36 35 Table 4 : OLS, Beween, Whn and FGLS esmaes Dependen Méhode d esmaon Varable w OLS Whn Beween FGLS Barganng power (γ) Barganng power me dscoun facor (γβ) 0.22 (0.01) 0.14 (0.05) 0.18 (0.02) 0.15 (0.04) 0.23 (0.01) 0.12 (0.08) 0.19 (0.01) 0.16 (0.03) R Source : Panel BIC-DMMO-ESE, , Insee. Noe : Sandard errors are ndcaed n parenheses. Esmaons are robus o heeroscedascy and auocorrelaon and nclude ndusral cross me dummes. Tess of he exsence of an ndvdual effec : 2 Fscher es : σ B = > F 2 5% (3648,3656) σ W Tess of he exogeney of he ndvdual effec : Hausman es : > χ 95% ( 2) Table 5 : Whn, frs dfferences and long dfferences. Dependen Mehod Varable w Whn frm Frs dfferences Long dfferences Barganng power (γ) Barganng power me dscoun facor (γβ) 0.18 (0.02) 0.15 (0.04) 0.16 (0.01) 0.27 (0.03) 0.16 (0.01) 0.16 (0.01) R Source : Panel BIC-DMMO-ESE, , Insee. Noe : Sandard errors are ndcaed n parenheses. Esmaons are robus o heeroscedascy and auocorrelaon and nclude ndusral cross me dummes.