No Extension without Representation? Evidence from a Natural Experiment in Collective Bargaining

IMF Working Papers, July 21, 2016

Source details

Canonical URL: No Extension without Representation? Evidence from a Natural Experiment in Collective Bargaining

Research question: causal impact of government-issued extensions of collective agreements on employment.
Context: Portugal natural experiment created by the immediate suspension on 21 June 2011 of the previously nearly automatic extensions.
Identification: suspension combined with administrative processing time produced a sharp and unanticipated decline in the extension probability for agreements signed several months earlier around 1 March 2011.
Data and design: regression discontinuity design with matched employer-employee-agreement panel data.
Main overall result: extensions had a negative impact on employment growth, with effects concentrated among non-affiliated firms.
Relevant contextual factor: role of retro-activity and administrative delay in processing extensions, particularly salient during a recession.

Empirical strategy: regression discontinuity design exploiting discontinuity in extension probability around 1 March 2011 caused by policy suspension on 21 June 2011.
Data structure: matched employer-employee-agreement panel data.
Scope: analysis focuses on agreements and firms affected by the change in extension practice in Portugal.

Primary finding: extensions of collective agreements reduced employment growth.
Distributional effect: adverse effects concentrated among non-affiliated firms (i.e., firms not affiliated to employer associations).
Mechanisms highlighted:
- Lack of representativeness of employer associations may explain why extensions reduced employment growth.
- Retro-activity of extended agreements, combined with administrative delays in processing extensions, can intensify negative employment effects, especially in a recessionary environment.

Consider representativeness criteria when extending collective agreements to avoid adverse labor market outcomes for non-affiliated firms.
Account for administrative processing times and retro-activity when designing extension policies, particularly during recessions, to mitigate unintended negative employment impacts.

Subject: Employment, Employment protection, Employment rate, Labor, Wages
Keywords: afffiliated firm, affiliated firm, affiliation status, collective bargaining, collective bargaining coverage, employer association, employer associations, employment, employment growth, Employment protection, Employment rate, firm performance, Global, growth rate, industrial relations, representativeness of collective agreements, wage inequality, wage setting, Wages, WP