Collective Wage Co‐ordination and the Costs of Job Displacement

ABSTRACT This paper investigates whether a higher level of co‐ordination in collective wage bargaining affects the wage costs of job displacement. We use quasi‐exogenous variation in the timing of job loss due to mass layoffs spanning an institutional reform that introduced national ceilings to wage agreements negotiated at sectoral‐ and firm‐level—the 1996 Belgian Wage Norm. We find that average earnings losses over a 10‐year period after displacement are roughly half as large under the more coordinated wage bargaining system. While business cycle conditions may contribute to some earnings differences, several factors suggest that cyclical effects are unlikely to be the primary driver of our results. The attenuation stems from faster re‐employment and improved sorting into higher ranked firms, consistent with wage compression, facilitating quicker job transitions and limiting downward mobility after job loss. These effects are concentrated among high‐skill service workers.