The effect of private versus public ownership on labour earnings

We examine the impact of privatization on wage formation in unionized labour markets. Using longitudinal worker-firm data for Portugal spanning the period 1991-2007, we find that privatization significantly increases the actual paid wage and show that this effect occurs via two different channels. First, privatization tends to increase the wage floor negotiated via collective bargaining. Second, privately owned firms tend to pay larger mark-ups on the union wage floor. These effects are heterogeneous across bargaining regimes and worker groups, with pay rises occurring only under more decentralized bargaining settings, and accruing predominantly to newcomers to the firm and highly educated workers.