Wage Dispersion and Decentralization of Wage Bargaining

This article 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.