Firms' wage policies and the rise in labor market inequality: The case of Portugal

Applying a multi-level wage regression model to a matched employer-employee data set for the years 1983 and 1992, the author investigates whether changes in company wage policies can account for the sharp rise in labor market inequality in Portugal. The results suggest that traditional wage progression mechanisms based on seniority lost influence between the two years, whereas general skills became more valued by employers. Changes in the returns to tenure at the micro level thus had an equalizing impact on the distribution, but sharply increased returns to education, as well as a rising wage disadvantage for women relative to men, increased overall inequality.