Market Competition and Lower Tier Incentives

The relationship between competition and performance-related pay has been analysed in single-principal-single-agent models. While this approach yields good predictions for managerial pay schemes, the predictions fail to apply for employees at lower tiers of a firm's hierarchy. In this paper, a principal-multi-agent model of incentive pay is developed which makes it possible to analyze the effect of changes in the competitiveness of markets on lower tier incentive payment schemes. The results explain why the payment schemes of agents located at low and mid tiers are less sensitive to changes in competition when aggregated firm data is used. JEL classification numbers: D82, J21, L13, L22. Keywords: Cournot competition, Contract delegation, Moral hazard, Entry, Market size, Wage cost.

Market Competition and Lower Tier Incentives

The relationship between competition and performance-related pay has been analyzed in single-principal-single-agent models. While this approach yields good predictions for managerial pay schemes, the predictions fail to apply for employees at lower tiers of a firm's hierarchy. In this paper, a principal-multi-agent model of incentive pay is developed which makes it possible to analyze the effect of changes in the competitiveness of markets on lower tier incentive payment schemes. The results explain why the payment schemes of agents located at low and mid tiers are less sensitive to changes in competition when aggregated firm data is used. Journal of Economic Literature classiffication numbers: D82, J21, L13, L22. Keywords: Cournot Competition, Contract Delegation, Moral Hazard, Entry, Market Size, Wage Cost.

Wage inequality and unemployment with overeducation

A skill-biased change in technology can account at once for the changes observed in a number of important variables of the US labour market between 1970 and 1990. These include the increasing inequality in wages, both between and within education groups, and the increase in unemployment at all levels of education. In contrast, in previous literature this type of technology shock cannot account for all of these changes. The paper uses a matching model with a segmented labour market, an imperfect correlation between individual ability and education, and a fixed cost of setting up a job. The endogenous increase in overeducation is key to understand the response of unemployment to the technology shock.

The wage effect of an indexation clause: Evidence from Spanish manufacturing firms

An endogenous switching model of ex-ante wage changes under indexed and non-indexed settlements is estimated for the Spanish manufacturing sector using collective bargaining firm data for the 1984-1991 period. The likelihood of indexing the settlement is higher for nationwide unions than for other union groups within the works council and increases with the expected level of inflation. For wage change equations, a common structure for indexed and non-indexed settlements is strongly rejected, showing a source of nominal rigidity. For indexed contracts, the expected ex-ante total inflation coverage is nearly complete. It is also shown that workers pay a significant ex-ante wage change premium (differential) to obtain a cost of living allowance clause. However, the realised contingent compensation exceeds such a premium for all industries. Finally, important spillover effects in wage setting and the decision to index the settlement have been detected.

Union power, minimum wage legislation endogenous labor supplies and production

The objective of this work is to study the impact of the unions' bargaining power on production and wages. We present a model where a competitive final good is produced through two substitutable intermediate goods, one produced by unskilled labor and the other by skilled labor. Potential workers decide at their cost to become skilled or unskilled and, thus, labor supplies are determined endogenously. We find that the reallocation of the labor supplies due to changes in the unskilled (or skilled) unions¿ bargaining power may have a positive impact on the final goods production. At the same time, total labor earnings increase with the unskilled unions¿ bargaining power if the final goods production increases too. We also show that the minimum wage legislation has efects similar to an increase in the bargaining power of the unskilled unions.

Union power, minimum wage legislation endogenous labor supplies and production

The objective of this work is to study the impact of the unions' bargaining power on production and wages. We present a model where a competitive final good is produced through two substitutable intermediate goods, one produced by unskilled labor and the other by skilled labor. Potential workers decide at their cost to become skilled or unskilled and, thus, labor supplies are determined endogenously. We find that the reallocation of the labor supplies due to changes in the unskilled (or skilled) unions¿ bargaining power may have a positive impact on the final goods production. At the same time, total labor earnings increase with the unskilled unions¿ bargaining power if the final goods production increases too. We also show that the minimum wage legislation has efects similar to an increase in the bargaining power of the unskilled unions.

Regional heterogeneity in wage distributions. Evidence from Spain.

Regional differences in real wages have been shown to be both large and persistent in the U.S. and the U.K., as well as in the economies of other countries. Empirical evidence suggests that wage differentials adjusted for the cost of living cannot only be explained by the unequal spatial distribution of characteristics determining earnings. Rather, average wage gap decomposition reveals the important contribution made by regional heterogeneity in the price assigned to these characteristics. This paper proposes a method for assessing regional disparities in the entire wage distribution and for decomposing the effect of differences across regions in the endowments and prices of the characteristics. The hypothesis forwarded is that the results from previous studies obtained by comparing average regional wages may be partial and nonrobust. Empirical evidence from a matched employer-employee dataset for Spain confirms marked differences in wage distributions between regions, which do not result from worker and firm characteristics but from the increasing role of regional differences in the return to human capital.

The Cost of ownership in the governance of interfirm collaborations

This paper investigates the selection of governance forms in interfirm collaborations taking into account the predictions from transaction costs and property rights theories. Transaction costs arguments are often used to justify the introduction of hierarchical controls in collaborations, but the ownership dimension of going from “contracts” to “hierarchies” has been ignored in the past and with it the so called “costs of ownership”. The theoretical results, tested with a sample of collaborations in which participate Spanish firms, indicate that the cost of ownership may offset the benefits of hierarchical controls and therefore limit their diffusion. Evidence is also reported of possible complementarities between reputation effects and forms of ownership that go together with hierarchical controls (i.e. joint ventures), in contrast with the generally assumed substitutability between the two.

Price competition under cost uncertainty: A laboratory analysis

We study the relation between the number of firms and price-cost margins under price competition with uncertainty about competitors' costs. We present results of an experiment in which two, three and four identical firms repeatedly interact in this environment. In line with the theoretical prediction, market prices decrease with the number of firms, but on average stay above marginal costs. Pricing is less aggressive in duopolies than in triopolies and tetrapolies. However, independently from the number of firms, pricing is more aggressive than in the theoretical equilibrium. Both the absolute and the relative surpluses increase with the number of firms. Total surplus is close to the equilibrium level, since enhanced consumer surplus through lower prices is counteracted by occasional displacements of the most efficient firm in production.

Unemployment and wage formation in a growth model with public capital

We study the relation between public capital, employment and growth under different assumptions concerning wage formation. We show that public capital increases economic growth, and that, if there is wage inertia, employment positively depends on both economic growth and public capital.

The Total fiscal cost of indirect taxation: an approximation using Catalonia's recent input-output table

In this note we quantify to what extent indirect taxation influences and distorts prices. To do so we use the networked accounting structure of the most recent input-output table of Catalonia, an autonomous region of Spain, to model price formation. The role of indirect taxation is considered both from a classical value perspective and a more neoclassical flavoured one. We show that they would yield equivalent results under some basic premises. The neoclassical perspective, however, offers a bit more flexibility to distinguish among different tax figures and hence provide a clearer disaggregate picture of how an indirect tax ends up affecting, and by how much, the cost structure.

The spatial inequality of wage income in Barcelona Metropolitan Area

ABSTRACT The measure and estimation of income levels in Barcelona Metropolitan Area (BMA) goes back a long way. Using different approaches and focusing on different municipalities, there is a lot of work in the field. The majority of the literature has focused on the estimation of income levels using variables related to consumption. The empirical evidence on wage differentials has shown an important growth during 80’s and 90’s especially in United Kingdom and USA. Less is known on spatial distribution of inequality. This paper presents a new data set for analyzing spatial distribution of wage income. This data is obtained by matching Wage Structure Survey (WSS) with data from Census disaggregated by census tracts. In this way we have a unique data set with wage incomes for every census track for 36 municipalities belonging to BMA. We develop a descriptive analysis of spatial distribution, testing for spatial autocorrelation and use the family of Generalised Entropy Indices to measure inequality. Properties of the index allow us to decompose inequality into inter and intra-municipality measures. Since we have two cross-sectional data for WSS (1995-2002) we can also analyze the evolution of the inequality in this period of economic growth. Key words: spatial distribution of wages, spatial autocorrelation, inequality indices.