In this study of Mexican firms, unions appear to bargain principally about employment rather than wages and firms appear to pay efficiency wages above market clearing to reduce turnover. Since minimum wages are not binding, whatever labor market segmentation is observed arises endogenously, and is not due to union- or government-induced distortions.
Applying quantile analysis to detailed firm-level data from Mexico, Maloney and Ribeiro study determinants of demand and wages for two classes of labor.
Unions appear to have a strong impact on how much unskilled labor is employed but not on wages. This suggests an extreme example of "efficient bargaining" rather than the more common "monopoly union" behavior. The impact on productivity is, by definition, negative, but unions could also be said to be forcing firms to use "appropriate technology" (less capital and more workers), increasing the total amount of labor employed in the economy. The only impact on wages appears for the tenth (lowest) quantile of unskilled workers, suggesting that unions prevent workers from being paid too far below the median for their skill level.
Maloney and Ribeiro identify significant efficiency wage effects where firms pay above market clearing to prevent labor turnover both in labor demand and in the wage equations. Since minimum wages are not binding and the union impact on wages is small, this suggests that whatever segmentation exists emerges endogenously and is not due to union- or government-induced distortions.
Maloney and Ribeiro offer the first use of quantile analysis to analyze labor demand at the firm level, and one of the first uses of correct standard errors in two-stage least-squares quantile regression.
This paper—a product of the Poverty Reduction and Economic Management Sector Unit, Latin America and the Caribbean Region—is part of a larger effort in the region to understand the functioning of developing country labor markets. Copies of the paper are available free from the World Bank, 1818 H Street NW, Washington DC 20433. Please contact Tania Gomez, room I8-102, telephone 202-473-2127, fax 202-522-2119, Internet address tgomez@worldbank.org. The authors may be contacted at wmaloney@worldbank.org or ribeiro@vortex.ufrgs.br. May 1999. (43 pages)
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