Abstract(s)
We use novel quasi-experimental variation to (i) test whether firm-specific demand shocks impact wages, and (ii) to disentangle predictions coming from wage
bargaining and firm upward sloping labor supply curve (wage posting). We use
a unique institutional feature of public procurement auctions in Brazil: the moment in which the auction ends is random. Under this setting, for close auctions in
which firms are constantly outbidding each other by incremental amounts, winner
and runner-up are as good as randomly assigned. Using this first variation, we find
that winning a government contract increases wages. In addition, contract value
is higher for auctions that (randomly) end earlier. We use these two sources of
exogenous variation to disentangle the effect on wages that comes from changes in
firm size (wage posting) and the part that comes from changes in contract value
holding size constant (bargaining). We find direct evidence of bargaining.