The effect of private versus public ownership on labour earnings

We examine the impact of privatisation on wage formation in unionised labour markets. Using longitudinal worker-firm data for Portugal spanning the period 1991-2007, we find that privatisation leads to higher wages, and show that this effect is driven by the fact that privatised firms tend to pay larger mark-ups on the union wage floor. These findings accord with a theoretical model in which actual paid wages are determined via sector-wide collective bargaining and firm-specific "fair-wage" policies, and where private ownership affects wage-setting incentives in both of these stages.