A new GLO Discussion Paper finds for Portugal that while wages of continuing workers were increasing following an extension, formal employment and wage bills in the relevant sectors were falling.
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GLO Discussion Paper No. 413, 2019
30,000 minimum wages: The economic effects of collective bargaining extensions – Download PDF
by Martins, Pedro S.
GLO Fellow Pedro S. Martins
Author Abstract: Many governments extend the coverage of collective agreements to workers and employers that were not involved in their bargaining. These extensions may address coordination issues but may also distort competition by imposing sector-specific minimum wages and other work conditions that are not suitable for some firms and workers. In this paper, we analyze the impact of such extensions along several economic margins. Drawing on worker- and firm-level monthly data for Portugal, a country where extensions have been widespread, and the scattered timing of the extensions, we find that, while continuing workers experience wage increases following an extension, formal employment and wage bills in the relevant sectors fall, on average, by 2%. These results increase by about 25% across small firms and are driven by reduced hiring. In contrast, the employment and wage bills of independent contractors, who are not subject to labor law or collective bargaining, increases by over 1% following an extension.
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