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Understanding wage determination in a multi-level bargaining system (21/12/2009)


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This study attempts to measure the impact of industry-level wage bargaining on individual wages in Belgium. The results indicate that industry wage bargaining increases decided collectively at the industry level are, on average, fully passed on to actual wages. Moreover, industry wage bargaining seems to coexist along with a wage drift affected by company size, the economic performance of the industry and labour market tensions.

Belgium is characterised by a relatively centralised wage bargaining system with the industry level playing the most important role. In this paper, we attempt to quantify empirically the importance of industry level bargaining on actual wages at the individual level. In order to better understand wage determination in Belgium, our analysis is microeconomic and takes into account the variability in actual wages existing between workers within firms or sectors. In addition to industry Economic impacts of tax-shifting operations Understanding wage determination in a multi-level bargaining system level bargaining, we are interested in the supplementary wage increases granted at the firm level, referred to as wage drift or the wage cushion in the literature. Because we do not have data on individual contractual wages, we cannot directly measure the difference between actual and contractual wages. Instead, we use the index of contractual wage increases by sectoral committee published by the Belgian Federal Public Service of Employment.

To measure the impact of industry level bargaining and the existence of wage drift, we use panel data analysis techniques. Our data are from the National Social Security Office (RSZ/ONSS) and cover the population of full-time wage earners for the period 1998-2006. Contrary to most studies on wage determination in Belgium, which use cross sectional data, the longitudinal dimension of our data allows us to take into account unobserved individual characteristics that have an impact on actual wages. These time invariant characteristics could represent the workers’ education level (not available in the RSZ/ONSS database) or their motivation, which is generally difficult to measure. Concretely, we estimate
wage equations by gender and status (blue/white collar), where the nominal gross individual wage is explained by individual (observed and unobserved), company and industry characteristics, the index of conventional wage increases and the unemployment rate of the worker’s county of residence. To better understand the impact of the industry level bargaining, we estimate two models: with and without the index of conventional wage increases.

Our results show that the elasticity of wages to industry level bargaining is significant and close to unity for all worker categories. This means that wage increases decided
collectively at the industry level are, on average, fully passed on to actual wages. Furthermore, we find that industry level bargaining partially integrates most of the characteristics taken into account in our model. Conversely, in the presence of industry level bargaining, these characteristics remain significant, indicating additional increases at the firm level (wage drift). Our results allow us to better understand wage drift in Belgium: it depends on company size, the economic performance of the industry and labour market tensions. Another interesting
result concerns the impact of cuts in employers’ and employees’ social security contributions (SSC). Although this policy aims at promoting employment, our results indicate a slight effect on actual wages: cuts in employers’ SSC have a downward effect on white collar wages and cuts in employees’ SSC an upward effect.






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