VOLUME XII
WINTER 2004

INTER-FIRM WAGE DIFFERENTIALS AND WAGE INEQUALITIES
 
JUAN IGNACIO PALACIO
Universidad de Castilla La Mancha
HIPÓLITO J. SIMÓN
Universidad de Alicante - Instituto de Economía Internacional
 
The purpose of this paper is to empirically analyze wage determination in the Spanish labour market with adequate information on both labour demand and supply sides. The evidence obtained with matched employer- employee data from the Encuesta de Estructura Salarial suggests that the establishment of affiliation is a very relevant determinant of the wages earned by Spanish workers and that very important wage differences among establishments after controlling for observed individual characteristics exist. These differentials are unusually dispersed, considering the features of Spanish collective bargaining, where sectoral bargaining is prevalent. The evidence also shows that those enquiries into wage determination that do not properly control for the effect of labour demand incur severe bias when estimating the returns of individual characteristics, such as human capital proxies.
 
Key words: wage structure, inter-firm wage differentials, collective bargaining.
JEL classification: J31, J50.

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