Bargaining, compensating wage differentials, and dualism of the labor market: Theory and evidence for France

The theory of compensating differentials predicts a negative relationship between wages and good working conditions, while the theory of segmentation predicts a positive one. Combining the hedonic wage model and the wages-employment collective bargaining model, we show the relevance of a further factor: a union power effect. Then we test the validity of this effect with French cross-section data. Empirical results confirm the predictions of the model, that is, the coexistence of a negative relationship between wages and good working conditions for the whole sample (market effect) and a positive relationship in highly unionized sectors (union power effect).