November 2011

IZA DP No. 6176: Wage Dispersion and Decentralization of Wage Bargaining

published in: Journal of Labor Economics, 2013, 31 (3), 501-533

This paper studies how decentralization of wage bargaining from sector to firm-level influences wage levels and wage dispersion. We use detailed panel data covering a period of decentralization in the Danish labor market. The decentralization process provides variation in the individual worker's wage-setting system that facilitates identification of the effects of decentralization. We find a wage premium associated with firm-level bargaining relative to sector-level bargaining, and that the return to skills is higher under the more decentralized wage-setting systems. Using quantile regression, we also find that wages are more dispersed under firm-level bargaining compared to more centralized wage-setting systems.