Do ties affect your wage?

Applying the BSPS-SME matched employer-employee data

Outline

1) Introduction

2) Theory

3) Empirical strategy

4) Results

5) Conclusion

2

Introduction

• Traditional wage determinants

• Informal contacts in the labour market (Rees, 1966)

• Recruitment ties (Granovetter, 1973)

• Manager tie (34 pct)

• Worker tie (24 pct)

• Mechanism through which ties affect wages

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Theory

• Human capital (Mincer, 1974)

• Efficiency wage (Lazear, 1979)

• Job search (Stigler,1970; Pissarides 2001)

4

Data

• BSPS SME data from 2007

• The subsample:• 426 enterprises• 753 employees

• 392 production workers• 76 managers

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Empirical strategy

• Following Troske, 1999

• wi: real wage of worker i

• Xi: vector of worker i’s characteristics

• Zi: vector of firm characteristics of worker i's employer

• Ti: vector of the recruitment tie of worker i

• ui: worker-specific error term.

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Dependent variable

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Explanatory variables - employee

Traditional wage determinants• Education• Experience (years in firm, age)• Gender• Union membership• Occupation

• Recruitment ties

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Occupation and ties

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Recruitment method (%)

manager tie = 1 worker tie = 1

Full sample 33.9 23.5

Occupation:

Manager 51.3 10.5

Professional worker 26.3 23.2

Office worker 29.3 26.7

Sales worker 41.2 19.1

Service worker 23.3 25.6

Production worker 33.2 26.0

Explanatory variables - firm

• Size• Legal status• Sector• Province• Manager education• Share of professional workers• Share of female workers• Other labour costs

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Results – employee characteristics

Dependent variable: Log real wage (1) (2)Education:

No education = 1 -0.740*** -0.587***

Primary school = 1 -0.554*** -0.328***

Secondary school = 1 -0.471*** -0.269***

High school = 1 -0.404*** -0.239***

Technical certificate/Elementary worker = 1 -0.308*** -0.128

Technical worker without certificate = 1 -0.243*** -0.128

Technical worker/professional secondary = 1 -0.167*** -0.073

Occupation NO YES 11

Results – informal recruitment

Dependent variable: Log real wage (1) (2) (3) (4)

Recruitment: Manager tie = 1 0.111*** 0.077** 0.088** 0.043

Worker tie = 1 0.088*** 0.098*** 0.038 0.051*

Occupation: Manager = 1 0.467*** 0.491***

Professional worker = 1 0.179*** 0.204***

Office worker = 1 0.096* 0.109**

Sales worker = 1 0.224*** 0.231***

Service worker = 1 -0.004 -0.040

Firm characteristics NO NO YES YES12

Worker tie

Manager tie

WageOccupationEmployee and

firm char.

How do ties affect wages?

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Sensitivity analysis

• Sensitivity analysis

• Occupation*

• Sector

• Location*

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Occupation

Dependent variable: Log real wage

(1)Production workers

(2)Non-production workers

Recruitment ties: Manager tie = 1 -0.001 0.143**

Worker tie = 1 0.066* 0.021

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Location

Dependent variable: Log real wage

(1)Rural

(2)Urban

(3)Rural

(4)Urban

Recruitment ties:

Manager tie = 1 -0.027 0.178*** -0.071* 0.122***

Worker tie = 1 0.036 0.063 0.040 0.089**

Occupation NO NO YES YES

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Location – urban provinces only

Dependent variable: Log real wage (3) (4)HCMC:

Manager tie = 1 0.315*** 0.234***

Worker tie = 1 0.053 0.061

Hanoi:Manager tie = 1 0.039 0.020

Worker tie = 1 0.127 0.183**

Occupation NO YES

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Conclusion

• Traditional wage determinants significant

• Informal contacts matter!

• Manager tie works through occupation

• Worker tie works within occupation

• Large differences across location

• Future work – explain productivity

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