DP754 | Who Are the Insiders? Wage Setting in Spanish Manufacturing Firms

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This paper analyses the wage formation process in Spain taking into account the effect of the institutional change caused by the creation of low-firing-cost, fixed-term labour contracts. An insider-outsider model which assumes that the interests of workers under these contracts are disregarded in wage bargains is set up and tested. The estimation of a wage equation for a sample of large Spanish manufacturing firms yields an estimate of the insider weight and confirms that an increase in the proportion of fixed-term employees increases insiders' wages.