Featured Papers

Estimated Worker's Bargaining Power

Hugo de Almeida Vilares, Hugo Reis

2021, , Completed Draft

Most OECD countries, with the exception of the Southern European countries, have witnessed remarkable increases in wage inequality. This paper develops and implements a dynamic search and matching model, where sector bargaining widely prevalent in Continental Europe is explicitly introduced. We use a comprehensive longitudinal employer-employee data on Portugal for the last two decades, and its defined collective bargaining rankings of workers. We find that wage determination has synchronized a notable stability of worker bargaining power at the bottom of the skill distribution, with a perennial erosion at the middle and the top. These trends led to wages becoming more reliant on sectoral bargaining, increasing its decoupling from firm productivity. This transition contributed to a compression of the wage distribution and to a downward trend of assortative matching in the market. These findings are resilient even in the context of the Great Recession, highlighting the importance of the labour market institutions and its dynamics in shaping wage inequality outcomes.

Early versions of this work were circulated with the title A Saga of Wage Resilience: Like a Bridge over Troubled Water.

Estimated unemployment surge due to negative productivity shocks

Hugo de Almeida Vilares

2022, Completed Draft

The Great Recession in Continental Europe sparked a Great Unemployment Divergence, led by a catastrophic job destruction in some countries. To study such phenomena, I resort to a Bewley-Hugget-Aiyagari incomplete-markets model with an indirect search frictional labour market as in Krusell et al. (2010). I complement it with: (a) financial constraints à la Kiyotaki and Moore (1997), (b) labour market dualism in employment protection, and (c) downward real wage rigidity, and I show that a catastrophic job destruction phenomena can take place in the presence of medium to severe aggregate negative and temporary productivity shocks, leading to a costly process of destruction of inter-temporally viable existing jobs - a last dance phenomena. For that outcome, the initial leverage positions of firms and the management of liquidity along the downturn are critical, and can justify divergent paths in unemployment. In a calibration to portray the Portuguese economy, no intervention would imply an elasticity between the initial downturn and the unemployment rate of close to 1 for initial downturns of more than 5-6 percent. In such context, several balanced-budget policies targeting the liquidity in permanent contracts are considered, and they prove to be capable to alleviate sizably the job destruction mechanism.