Wages and Product Market Power

Abstract

This paper analyses time-series on some 800 British manufacturing companies to address various questions concerning the role of insiders and market power in wage determination. The following are the most important results. First, product market power has a positive impact on wages; this impact is enhanced in large firms but is not influenced by union status. Second, while firm-specific factors influence wages, the size of these effects is not influenced by union status, firm size or product market power; however, product market power reduces the generally strong negative effect of unemployment on wages. Finally, there is no robust evidence of insider power at work in wage-setting irrespective of product market position.