This article studies how decentralization of wage bargaining from sector to firm level influences wage levels and wage dispersion. We use detailed panel data covering a period of decentralization in the Danish labor market. The decentralization process provides variation in the individual worker's wage-setting system that facilitates identification of the effects of decentralization. We find a wage premium associated with firm-level bargaining relative to sector-level bargaining and that the return to skills is higher under the more decentralized wage-setting systems. Using quantile regression, we also find that wages are more dispersed under firm-level bargaining compared to more centralized wage-setting systems.
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