Grasping Wage Bargaining Power: trends, gaps and drivers

Abstract

To measure the productivity-wage gap correctly, I depart from the basic Insider-Outsider model and extend it to encompass a Wage Bargaining Power Index, which is fundamental for understanding labour markets. This index takes the value of 0 if workers are paid as little as possible and takes the value of 1 if they are paid the value they generate. In the first part, I find an index for Peruvian labour market which move around 0.26 in the period 2007-2019. Additionally, there is a clear gender gap, which favors men, who have an index ranging from 0.25 to 0.31, while the index for women fluctuates between 0.21 and 0.25. In the second part, I explore the main drivers and I find, in general, some positive effects on education and fixed-term contracts, and negative effects of being women, non-white, working in a small-enterprise, violation of labour rights, the job search rate and tax revenues paid. By gender, I find that while men are disadvantaged by their class status and race, education and fixed-term contracts empower women's wage bargaining power. However, working in a small business and the job search rate have a greater negative effect on women than on men.