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. 

Against the backdrop of its industrial relations architecture, characteristic of the 'southern European group' and intimately linked to the recommendations of the Troika, this paper examines four key aspects of Portuguese collective bargaining. First, it provides definitive estimates of private sector union density for that nation. Second, it models the determinants of union density at firm level. Third, it yields estimates of the union wage gap for different ranges of union density. The final issue examined is contract coverage. The received notion that the pronounced reduction in the number of industry-wide agreements remaining largely unaffected by the economic crisis. The reduced frequency of new agreements and extensions is instead attributed to downward nominal wage rigidity in low-inflation regimes.

Whereas wage inequality has risen markedly in most OECD countries in recent decades, it has fallen in several Southern European economies. To shed light on this phenomenon, we embed sectoral bargaining, which is common in Southern European economies, in a dynamic search and matching model. We estimate the model using comprehensive employer-employee data from Portugal for the last two decades and its data on collective bargaining agreements in different sectors, which allows us to assess the evolution of rent sharing. We find that since the mid-2000s, worker bargaining power has grown slightly at the bottom of the skill distribution while shrinking at the middle and top, contributing to the compression of the wage distribution. These changes, which persisted even during the Great Recession, increased the importance of sectoral bargaining in wage determination, weakened the relationship between wages and firm productivity, and reduced the assortative matching of workers to firms.

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

We examine the association between union density and wages in Portugal where just 10 percent of all workers are union members but nine-tenths of them are covered by collective agreements. Using a unique dataset on workers, firms, and collective bargaining agreements, we examine the union density wage gap in total monthly wages and its sources - namely, worker, firm, and job-title or `occupational' heterogeneity - using the Gelbach decomposition. The most important source of the mark-up associated with union density is the firm fixed effect, reflecting the differing wage policies of more and less unionized workplaces, which explains two-thirds of the wage gap. Next in importance is the job-title fixed effect, capturing occupational heterogeneity across industries. It makes up one-third of the gap, the inference being that the unobserved skills of workers contribute at most only trivially to the union density wage gap. In a separate analysis based on disaggregations of the total wage, it is also found that employers can in part offset the impact of the bargaining power of unions on wages through firm-specific wage arrangements in the form of the wage cushion.  Finally, union density is shown to be associated with a modest reduction in wage inequality as the union wage gap is highest among low-wage workers. This result is driven by the job-title fixed effect, low-wage workers benefiting more from being placed in higher paying `occupations.'

Early versions of this work were circulated with the title Sources of the Union Wage Gap: The Role of Worker, Firm, Match and Job-Title Heterogeneity.

In this paper, we study the value of job opportunities, by analysing in detail the role of the outside options of the worker through network analysis. In this setting, we study the value of the networks established by workers in affecting their wages, their on-job search behaviour, their job-to-job transitions and in affecting their reemployment probabilities in the outcome of an unemployment spell. By establishing the network worth of a worker, we have the possibility to study the labour market prospects not only in the current match of the worker, but more importantly in a broad analysis of his labour market prospects. Further, the drivers behind the value acquisition will deserve attention, thus allowing for a better understanding about which drivers push for a more valuable network.