Wage Elasticity Research Articles

The Minimum Wage in Greece: A Review of Institutional Features, Developments and Effects Between 1975 and 2023

Abstract This paper takes a historical perspective and assesses the evolution of the institutional features in setting the minimum wage in Greece between 1975 and 2023. It also evaluates developments regarding the minimum wage level, its bite and alignment with productivity. The paper reviews the limited available empirical literature on the association of the minimum wage with labour market outcomes (average wages, employment, inequality). It presents new estimates of the elasticity of average wages to the minimum wage. One of the paper’s key points is that the minimum wage setting mechanism has changed over time as the economic environment has changed. Reviewing the evolution of the minimum wage over time to evaluate whether the minimum wage follows productivity developments and whether the minimum wage bites leads to the second and third takeaways of the paper. The minimum wage follows productivity developments over the longer term but not always in the short term. The bite of the minimum wage is high and appears to be higher when government intervention in setting the minimum wage is stronger. As for the impact of the minimum wage on average wages, the new estimates of the elasticity of the average to the minimum wage the paper provides, use more precisely measured wage rates, which show a high elasticity of average to minimum wages. Finally, the review of the existing literature on the employment effects of the minimum wage shows that, as in other countries, the results are mixed with modest negative or no effects.

The Linear Algebra of Economic Geography Models

We provide sufficient statistics for nominal and real wage exposure to productivity shocks in a constant elasticity economic geography model. These exposure measures summarize the first-order general equilibrium elasticity of nominal and real wages in each location with respect to productivity shocks in all locations. They are readily computed using commonly available trade data and the values of trade and migration elasticities. They have an intuitive interpretation in terms of underlying economic mechanisms. Computing these measures for all bilateral pairs of locations involves a single matrix inversion and therefore remains computational efficient even with an extremely high-dimensional state space.

Foundation of the small open economy model with product differentiation

We derive a small open economy (SOE) as the limit of an economy as the number or size of its trading partners goes to infinity and trade costs also go to infinity. We obtain this limit in the Armington, Eaton–Kortum, Krugman, and Melitz models. In all cases, the trade of the SOE with the foreign countries approaches a finite limit, and the domestic expenditure share for the SOE approaches a limit that is not zero or unity. The foreign countries can be either infinitely many SOEs, or alternatively, one or many large countries with domestic expenditure shares that approach unity. We illustrate the usefulness of this framework by obtaining a formula for the optimal tariff in the SOE – depending on the elasticity of domestic wages with respect to the tariff – that is consistent with all models.

Employer Concentration and Wages for Specialized Workers

This paper studies how wages respond to a sudden change in employer concentration by using the deregulation of the Swedish pharmacy industry. The reform involved a substantial and policy-driven increase in the number of employers that varied by local labor market. Exploiting this variation, elasticities of wages with respect to labor market concentration are estimated between −0.025 and −0.061. The positive wage effects from reduced employer con centration are most prevalent for more mobile workers as well as younger and foreign-born workers. Overall, the paper finds that employer concentration matters for wages in a context where skills are industry specific. (JEL J24, J31, J42, L13, L81, L88)

Unemployment and Online Labor: Evidence from Microtasking

We analyze the relationship between unemployment and the supply of online labor for microtasking. Using detailed U.S. data from a large microtasking platform between 2011 and 2015, we study the participation and the number of hours supplied by workers in the U.S. We found that more individuals registered on the platform and completed microtasks as the unemployment level in the commuting zone increased. This effect was strongest in regions with a high share of low-skilled workers. Our analyses of the intensive margin, wage elasticity, and temporal work patterns suggest that the increased participation was likely motivated by an effort to substitute income. Our findings suggest that microtasking platforms are an interesting online labor market for less educated workers. However, we also observed very low retention rates, indicative of a solely transient participation effect.

Urban agglomeration, city size, and spatial density effects on wage flexibility: New evidence on the wage curve in Brazil

AbstractThis study aims to shed new empirical light on the importance of the wage curve in a developing economy. The main contribution to the empirical literature is related to the analysis being conducted at different regional levels of a developing economy. This indicates that municipal‐level data seems to be more adequate for wage curve evaluation, and that spatial dependency should be considered to adequately control for local labor market characteristics. Results for Brazil show that wage flexibility is higher in less dense local labor markets and in the informal sector. Controlling for unobserved local characteristics is necessary to obtain the ‘true’ elasticity of wages with respect to local unemployment rates, while spatial autocorrelation effects should be accounted for when the spatial unit of analysis is rather small to consider the interactions that happen inside a specific labor market area. Finally, a significant part of the difference in outcomes between formal and informal sectors appears to originate from spatial–economic dependence effects, indicating that labor market areas are more suitable for such analysis.

Worker selectivity and fiscal externalities from unemployment insurance

A robust prediction of job search models is that unemployment insurance (UI) makes workers more selective about which jobs they accept, thereby raising average accepted wages and thus generating a positive fiscal externality. We provide a sufficient-statistics formula for evaluating the size of this selectivity effect and argue theoretically that it is likely to be small. In a standard sequential search model, the effect of UI on wages is linked to its effect on the job-finding hazard; the slope of the relationship between these elasticities depends on a small number of estimable statistics, key among them observed worker flows. Plausible calibrations of the model imply that the magnitude of the wage elasticity is small relative to the job-finding elasticity. Although ignoring the wage effect of UI would over-estimate its fiscal cost and under-estimate its welfare benefit, the model-implied formula predicts the magnitude of this bias to be small.

Wage response to corporate income taxes: A meta‐regression analysis

AbstractThe wage elasticity to corporate income tax (CIT) is an essential parameter for assessing tax policy reforms. This paper applies meta‐regression analysis to quantitatively review the growing empirical tax incidence literature that indicates a substantial shift of the tax burden onto employees. While most studies report a large wage‐reducing effect of the CIT, our findings suggest that estimates with positive values are published less often than they should. After accounting for the bias, we find no significant average association between wage rates and corporate taxation. We document that the tax variable, econometric method, type of tax variation, and underlying time and country coverage of studies drive the heterogeneity among reported effects. The implied best‐practice estimates suggest that the tax elasticity of wages is systematically larger for emerging countries and smaller when tax changes at the subnational level are exploited.

Fishermen’s competitiveness and labour market performance: Evidence from shrimpers in Bangladesh

AbstractWe conduct an experiment to determine competitiveness among shrimpers who engage in collecting shrimp seeds in the southwestern coastal region of Bangladesh. We then examine how competitiveness affects the labour supply decisions and labour market performance of these shrimpers. Our results show that shrimpers who prefer competition are more productive than shrimpers who do not prefer competition. Competitive shrimpers secure better prices and earn higher incomes selling their catches. We estimate that their wage elasticity of participation ranges from 0.4 to 0.5, which is consistent with preferences under neoclassical assumptions. Competitive shrimpers have a slightly greater wage elasticity than non‐competitive shrimpers, suggesting that they might be more responsive to expected earnings. Our results have important policy implications for the efficient management of common pool resources.

Is China’s Urbanization Inclusive?—Comparative Research Based on Machine Learning Algorithms

Improving the inclusiveness of urban development is crucial to improving the wages of low- and middle-income workers. In this study, we used machine learning to cluster urban labor into low, middle, and high socioeconomic groups in order to analyze the effects of economic agglomeration and compare them with the results, which were classified according to income. The results showed that economic agglomeration has improved the wages of the low and middle socioeconomic groups; the estimated wage spillover effect was 3.9%. By contrast, the estimated result based on the groups classified by a single index of income was 20.3%, which represents an overestimation of the wage spillover effect of economic agglomeration. This method is often used to explain the inclusiveness of China’s urbanization, leading to overestimation. Further mechanism analysis found that the characteristics of the industrial structure affect the change in wage elasticity caused by economic agglomeration, which has a moderating effect on the wages of workers. The differing wage elasticity associated with economic agglomeration is responsible for wage disparities in China.

HOW ARE WORKING HOURS AND WAGE EARNINGS DETERMINED? A THEORETICAL AND EMPIRICAL STUDY

Incorporating both supply and demand functions of working hours, we constructed a model of working hours. The model demonstrates that (1) working hours and wage earnings are determined jointly at an equilibrium point on a contract curve where the demand and supply of workers are equal, and (2) the contract curve passes through the intersection of the supply and demand curves of working hours. These results imply that (1) it is impossible to estimate the supply curve of working hours because equilibrium points are not usually located on a supply curve of working hours, and (2) a contract curve of working hours should be estimated to measure the wage elasticity of working hours. For the estimation of contract curves, geometric mean regression (GMR) was selected for three reasons. First, both variables in the contract curve equations are measured with errors. Second, the GMR estimator is the maximum likelihood estimator. Third, the coefficient of determination (R2) of both variables is equal in the GMR. Applying GMR, the contract curves of working hours and their wage elasticity were estimated. The estimated wage elasticity of working hours was between -0.13 and -0.23.

The Evolution of the Wage Elasticity of Labor Supply Over Time

The Evolution of the Wage Elasticity of Labor Supply Over Time

Foreign Direct Investment Elasticities of Output, Labor, and Wages in Chile: A Simultaneous Equations Approach

We estimate foreign direct investment elasticities of output, of unskilled and skilled labor, and of unskilled and skilled wages for Chile, both at an aggregate level and for eight economic sectors. We use regional data from official Chilean sources ranging from 2012 to 2019 and data from economic sectors in each region for the period 1996–2011. Estimates are based on a simultaneous equation approach, which considers the two-way relationships between FDI and output as well as the relationships between output, labor, and wages stressed by the duality theory of production in economics. The estimations confirm that FDI triggers growth and that FDI follows growth. Due to the positive effects on output, FDI boosts employment creation, particularly of skilled labor. The estimated effects on wages are not significant, either statistically or practically. The output and labor effects of FDI are positive and significant in all economic sectors, but point estimates suggest that they could be larger for the agriculture-forestry-fishing sector. The results indicate that realistic increases in FDI can have substantial output and employment effects in Chile.

An Example of Negative Wage Elasticity for YouTube Content Creators

The neoclassical model of labor supply implies a positive wage elasticity absent significant income effects. This paper documents an instance of negative wage elasticity in video production by YouTube content creators. We exploit viral videos as an exogenous source of significant wage increases and investigate the productivity dynamics around the time a channel's video went viral, against a control group of channels that had no viral videos. Our analysis shows a productivity decline during the week after a video goes viral, despite the higher wages, followed by a gradual return towards pre-treatment productivity. This average productivity decline is driven by the channels with the lower numbers of subscribers. Channels in the upper quartile of the subscriber size distribution increase productivity after their video goes viral. We also show that average productivity responds positively to smaller increases in wages. These findings are consistent with an alternative model of labor supply, where a fraction of the content creators exhibit income targeting.

Asymmetries in the Labor Demand in Pakistan: Estimating Own and Cross Wage Elasticities Using Frictional Probit Model

Asymmetries in the Labor Demand in Pakistan: Estimating Own and Cross Wage Elasticities Using Frictional Probit Model

JUE Insight: Using the mode to test for selection in city size wage premia

The causal effect of city size on urban wage premia has been difficult to measure because unusually skilled workers may select into large city labor markets. We propose a new approach to this challenge. For single-peaked wage distributions, if individuals left of the mode disproportionately select out of large city labor markets, the CDF evaluated at the mode shrinks as city size increases. Among college trained, white full-time US workers, evidence of selection is present even after conditioning on extensive observable attributes. Among individuals with a high school degree or less, selection is absent. Additional estimates indicate that for college trained workers, 3.5% is an upper bound on the modal worker's wage elasticity with respect to city size. For those with limited education we can be more precise: modal wage elasticity is 3.9% for men and 5.2% for married women.

How do wage setting institutions affect wage rigidity? Evidence from French micro data

We document new empirical findings on the effects of wage setting institutions on wage rigidity using quarterly micro wage data matched with sectoral minimum wages. We first estimate a micro empirical model of wage rigidity that takes into account minimum wage dynamics. We then use a simulation method to investigate the implications of lumpy micro wage adjustment for aggregate wages. Both national and sectoral minimum wages have a large effect on the timing and on the size of wage adjustments. Minimum wage setting institutions contribute to increasing the time it takes to fully absorb a shock to wages by one year, although the resulting wage changes are significantly higher. Minimum wages contribute to amplifying, by a factor of 1.7, the response of wages to past inflation. The elasticities of wages with respect to past inflation, the national minimum wage and sectoral minimum wages are 0.42, 0.17 and 0.16 respectively. Finally, there are significant spillover effects of the national minimum wage on higher wages passing through from sectoral minimum wages.

Wages and accessibility – Evidence from Denmark

• This study estimates the agglomeration elasticity on Danish data of wages. • The decay parameter determining the distance weighting is estimated from the data. • The agglomeration elasticity is very robust to different estimation strategies. We estimate the elasticity of wages in Denmark with respect to the accessibility to jobs. This elasticity is used as an estimate for the productivity effects of transport infrastructure changes and is to be applied in calculations of the wider economic benefits of transport in policy appraisals in Denmark. The accessibility is a measure of economic density and is calculated as a weighted number of accessible jobs, where the weights are determined by a decreasing function of the generalised travel cost. The decay parameter determining the distance weighting is estimated from the data. We use a combination of different approaches, to control for selection bias and test the robustness of the results. The estimates are robust to the different estimation strategies. Over all, the elasticity varies in the range 0.008–0.037, and the estimates from our preferred models vary in the range 0.025–0.029.

Surge Pricing and Short-Term Wage Elasticity of Labor Supply in Real-Time Ridesharing Markets

The prominence of real-time ridesharing services, such as Uber and Lyft, has dramatically changed the landscape of traditional industries. This study provides a comprehensive analysis of the short-term wage elasticity of labor supply in real-time ridesharing markets using data from a major ridesharing platform in China. By exploiting an exogenous shock from uneven driving restrictions as an instrumental variable, we find a negative labor supply elasticity for ridesharing drivers, suggesting that drivers tend to drive less during days with a higher average hourly wage. Specifically, a percent increase in hourly wage will lead to a 0.931 percent decrease in daily working hours. This surprising finding is consistent with the behavioral income-targeting model based on the theory of reference-dependent preferences: Drivers have heuristic daily targets for total earnings and are more motivated to supply labor when they are below their income target than when they are above it. Therefore, they work less on days when earnings per hour are high and quit the market once their income target is reached. In addition, we find that taxi drivers are more rational and have positive labor supply elasticity, which implies that drivers are more rational when they have repeated opportunities for learning. Estimating labor supply elasticity is critical to understanding the economic efficiency of various surge pricing algorithms and driver subsidization programs for ridesharing platforms and policymakers. Our research suggests that a uniform price surging or driver subsidization approach for all ridesharing drivers may not incentivize the labor supply of drivers effectively.

An Example of Negative Wage Elasticity for YouTube Content Creators

An Example of Negative Wage Elasticity for YouTube Content Creators