DT 26/21 - Distributive and displacement effects of a coordinated wage bargaining scheme

The rise in inequality in developed countries returns to the political and economic spotlight wage policies and their implications for labor markets. In developing countries, however, wage policies are one of the main instruments chosen by governments to deal with inequality and poverty. This paper aims to assess the distributive and displacement effects of a wage policy featuring a coordinated collective wage bargaining scheme and a national minimum wage. We estimate the impact on wage distribution, job displacement, and employment of this wage policy, which consists of more than two hundred sectoral minimum wages and a national minimum wage. We find that the wage policy reduces inequality in the lower tail of the wage distribution for all formal workers and affects the right bottom for male workers. This distributive effect does not align with the significant deployment effect in the bottom sectoral distribution, and this small effect fades out when we consider the entrance of new workers. Finally, when we analyze the impact on the whole distribution, we observe that for those sectors with the more left wage distribution, we find a bigger displacement effect, but again if we assess the performance of the total employment, we find null impacts.