Wage Function Research Articles

Vertical wage differences in hierarchically structured firms

In this paper, we present a cooperative model of a hierarchically structured firm to study wage differences between different levels in such a firm. We consider a class of wage functions that are based on marginal contributions to production. It turns out that the wage of a manager is always at least as high as the wage of its subordinates. On the other hand, the wage of a manager never exceeds the sum of the wages of its direct subordinates. These bounds are sharp in the sense that we can characterize for which production processes they are reached. For the class of constant elasticity of substitution (CES) production functions this implies that the wage differences are maximal for linear production functions, and they are minimal for Cobb–Douglas production functions.

Cohort effects and the returns to education in West Germany

Using a Mincer-type wage function, we estimate cohort effects in the returns to education for West German workers born between 1925 and 1974. The main problem to be tackled in the specification is to separately identify cohort, experience, and possibly also age and year effects in the returns. For women, we find a large and robust decline in schooling premia: In the private sector, the returns to a further year of post-compulsory education fell from ten per cent for the 1945–49 cohort to about six per cent for those born in the early 1970s. Cohort effects in men's returns to education are less obvious, but we do find evidence that they, too, have declined. We conclude by identifying possible reasons for the decline.

Estimating Krugman’s Economic Geography Model for the Spanish Regions

This paper estimates Krugman’s (J Polit Econ 99:413–499, 1991) economic geography model using data from the Spanish NUTS 3 regions. The econometric formalization endogenously determines wages in a region as a function of income and wages in other regions. The specification adopted also allows us to study the relation between the agglomeration of economic activity, increasing returns and market access. The first result obtained is that the Spanish economy exhibits a spatial wage structure: wages in a region are positively determined by income and wages in neighboring regions. In second place it is found support for the structural relations of the underlying theoretical model, indicating the importance of scale economies and transport costs in shaping the Spanish economic geography.

A Dynamic Analysis of Cournot Duopoly in Imperfectly Competitive Product and Factor Markets

Assuming identical firms, a linear market demand function and a single factor of production, labour, we analyse the existence and stability of a homogeneous Cournot duopoly facing imperfect competition in both product and factor markets. Under the assumption of a fairly general wage function we are able to demonstrate local stability of the unique equilibrium, and global stability under the assumption of a convex reaction function.

Are There Border Effects in the EU Wage Function?

We estimate a linear approximation of the market potential function for Europe as derived in geography and trade models. Using a spatial econometric estimation approach, border effectsareidentifiedbyadifferentialimpactofotherregions’purchasingpower,depending on whether two regions are located within the EU15 or outside the EU15. We find that intra-EU15 borders have an insignificant but EU15 external borders a significant effect on regional wage structures. We also illustrate the magnitude of EU external border effects. Our results imply that border effects are most pronounced for border regions of new member states, but relatively small for most regions of the EU15.

Wage Differentials and Gender Discrimination

The purpose of this article is to follow the development of the Swedish gender earnings gap through the 1980s and 1990s. We follow the changes in the wage gap and in factors to which it can be related year-by-year by analysing crosssectional data from Statistics Sweden (HEK) for the years 1981 and 1983–98. The results show that the unadjusted wage gap varied between 12 and 15 per cent of the average male wage up to 1989, when the differentials began to increase. During the 1990s the size of the gap was around 14–18 per cent. In a decomposition analysis we find that the measured differences in jobs and qualifications between women and men can account only for between two-fifths and three-fifths of the gender wage gap, if they are assumed to be rewarded according to the male wage function. If the female wage function is applied, even less of the differentials are explained. Differences in the educational requirements for jobs have contributed considerably to gender earnings inequality. The impact has decreased over the period studied, however, and is about half as large in the 1990s as it was in the 1980s.

Heterogeneity and Learning in Labor Markets

This paper examines the role of agent heterogeneity and learning on wage and employment dynamics. In the first half of the paper, I present an equilibrium matching model where heterogeneous workers and firms learn about match quality and bargain over wages. The model generalizes Jovanovic (1979) to the case of heterogeneous workers and firms. Equilibrium wage dispersion arises due to productivity differences across workers, technological differences across firms, and heterogeneity in beliefs about match quality. Under a simple CRS technology, the equilibrium wage is additively separable in worker- and firm-specific components, and in the posterior mean of beliefs about match quality. This parallels the and firm empirical specification of Abowd et. al. (1999, AKM) and others. It consequently provides a theoretical context for the AKM model, and a formal economic interpretation of their empirical person and firm effects. The model also yields an assortative matching result that predicts a negative correlation between estimated person and firm effects, which is consistent with most empirical evidence. Finally, the model makes novel predictions about the relationship between the person and firm effects and separation behavior, job duration, and firm size. In the second half of the paper, I test the model's empirical predictions. I estimate fixed and mixed effects specifications of the equilibrium wage function on a novel linked employer-employee data set from the US Census Bureau. The mixed effect specifications generalize the earlier work of AKM and others. The learning component of the matching model implies a specific structure for the error covariance. I exploit this structure to test whether earnings residuals are consistent with Bayesian learning, and to estimate structural parameters of the matching model. I find considerable support for the matching model and its predictions in these data.

Positive and negative reciprocity in the labor market

Traditional gift-exchange experiments were designed with corner equilibria so that evidence of positive reciprocity could not be disentangled from one-sided errors. Our first treatment replicates the traditional design and finds that effort is an increasing function of wage for mid-range wage offers, but this relationship is not significant for high and low offers. The second treatment has an interior equilibrium, asymmetric marginal costs of reciprocity (positive and negative) and lower efficiency gains. There is evidence of a decrease in the deviations from the subgame perfect Nash equilibrium. However, there is still significant reciprocal behavior (positive and negative).

Some Evidence of the Impact on Non-Wage Labour Cost on Overtime Work and Employment

Total labour costs can be considered to be a function of the hourly wage, a quasi-fixed component {mainly fringe benefits and training cost) and overtime rate. The theoretical model employee in this paper suggests that an increase in the ratio of quasi-fixed cost to overtime rate leads to an increase in the amount of scheduled overtime work instead of employment. The model, tested with Canadian data, yields statistically significant results.

Real exchange rate and employment performance in an open economy

The usual neoclassical model of labor supply and employment determination has been based in closed economy models. This paper studies the effect of introducing open economy features on the determinants of equilibrium employment. It derives the long run employment level as a function of the real wage, real interest rate and real exchange rate from a standard open economy optimizing representative agent model. The paper tests the steady state solution of the model using US and UK data and, in order to avoid the Lucas' critique, it tests for the superexogeneity of the interest rate and exchange rate. The evidence shows a significant impact of the real exchange rate, real interest rate, and real wage only for the US, where it is also robust to the Lucas' critique.

Sequential Migration, and the German Reunification

The paper develops a sequential migration model and derives a worker's optimal policies for migration and employment. With the worker's simulated reservation wage functions for employment and migration, a stationary equilibrium is defined. In that equilibrium, stationary distributions of employed and unemployed stayers and movers over different states are derived. The analysis of Markov equilibria shows that mainly unemployed skilled and unskilled migrants will migrate. I have referred to this unemployed self-selection of skilled and unskilled migrants. Furthermore, in the stationary equilibrium, a trade off between equity and efficiency is derived and represents the adverse effects when a government fosters income increases too much.

Sequential Migration, and the German Reunification

The paper develops a sequential migration model and derives a worker's optimal policies for migration and employment. With the worker's simulated reservation wage functions for employment and migration, a stationary equilibrium is defined. In that equilibrium, stationary distributions of employed and unemployed stayers and movers over different states are derived. The analysis of Markov equilibria shows that mainly unemployed skilled and unskilled migrants will migrate. I have referred to this unemployed self-selection of skilled and unskilled migrants. Furthermore, in the stationary equilibrium, a trade off between equity and efficiency is derived and represents the adverse effects when a government fosters income increases too much.

On the Wage Growth of Immigrants: Israel, 1990–2000

This paper develops a descriptive methodology for the analysis of wage growth of immigrants that is, based on human capital theory. The sources of the wage growth are (1) the rise of the return to imported human capital, (2) the impact of accumulated experience in the host country, and (3) the mobility up the occupational ladder in the host country. The model implies a nonlinear wage function that includes interactions between imported skills and local wage growth. using data on native Israelis and immigrants from the former Soviet Union of Israel, we estimate wage equations jointly for the two groups. We find that, upon arrival, immigrants receive non return for imported skills. In the ten years following arrival, wages of highly skilled immigrants grow at 8 percent a year. Rising prices of skills, occupational transitions, accumulated experience in Israel, and an economy-wide rise in wages account for 3.4, 1.1, 1.5, and 1.5 percent each. In the long run, the return for schooling converges to 0.027, substantially below the 0.069 return for natives. We do not reject the hypothesis that the return for experience converges to that of natives and that immigrants receive a higher return for their unmeasured skills. We find that there is some downgrading in the occupational distribution of immigrants relative to that of natives. Moreover, the average wages of immigrants approach but do not converge to the wages of comparable natives. The main reason for this is the low return to their imported skills. (JEL: J24, J31, J60)

Recreation Demand Choices and Revealed Values of Leisure Time

An approach to jointly estimating an endogenous marginal value of time function and a recreation budget share equation is developed. The specification requirements for the marginal value of time function, to ensure consistency with the maintained hypothesis of two binding constraints on choice, are articulated. The estimating model consistent with these requirements that nests several conventional treatments of the marginal value of time is highly significant. The general endogenous marginal value of time model outperforms other approaches and shows a more complex relationship between the marginal value of time and the individual's wage than has been used in previous work. (JEL J22, Q26)

Cohort Effects and the Returns to Education in West Germany

Using a Mincer-type wage function, we estimate cohort effects in the returns to education for West German workers born between 1925 and 1974. The main problem to be tackled in the specification is to separately identify cohort, experience, and possibly also age effects in the returns. For women, we find a large and robust decline in schooling premia: in the private sector, the returns to a further year of post-compulsory education fell from twelve per cent for the 1945-49 cohort to about seven per cent for those born in the early 1970s. Cohort effects in men's returns to education are less obvious, but we do find evidence that they, too, have declined. We conclude by identifying possible reasons for the decline.

Wage rentals for reproducible human capital: evidence from Ghana and the Ivory Coast

Education, child nutrition, adult health/nutrition, and labor mobility are critical factors in achieving recent sustained growth in factor productivity. To compare the contribution of these four human capital inputs, an expanded specification of the wage function is estimated from household (LSMS) surveys of the Ivory Coast and Ghana. Specification tests assess whether the human capital inputs are exogenous, and instrumental variable techniques are used to estimate the wage function. Smaller panels from the Ivory Coast imply the magnitude of measurement error in the human capital inputs and provide more efficient instruments to estimate the wage equation. The conclusion emerges that weight-for-height and height are endogenous, particularly prone to measurement error, and heterogeneous in their effects on wages. Overall returns to these four forms of human capital are similar within each country for men and women, but education and migration returns are higher in the more rapidly growing Ivory Coast, and the wage effects of child nutrition proxied by height are greater in poorer, more malnourished Ghana.

A PRIVATE-PUBLIC COMPARISON OF BUS SERVICE OPERATORS

The aim of this study was to determine the key factors causing differences in efficiency between private and public bus operators, especially with regard to efficiency in service provision, wages, and costs. Econometric methods were used to estimate the cost function of bus services and the wage function. Analytical results suggest that the total operating cost of public bus operators is 20.2% higher than that of private bus operators, and that the wages of public bus operator employees are 14.5% higher than those of private bus operator employees.

The Effect of a Change in Wages on Welfare in a Two–Class Monocentric City

This paper performs a comparative static analysis to derive the effect of a change in the wages of the rich living in the suburban area of a city on the welfare of the poor living in the central area of the city. It assumes that commuting cost is a function of distance and wages. A sufficient condition for an increase in the wages of the rich to harm the welfare of the poor is that the time cost of commuting is greater than the operating cost of commuting.

Labour-Use Efficiency in Tunisian Manufacturing Industries

This paper investigates the process of adjustment in employment. A dynamic model is applied to a panel of six Tunisian manufacturing industries observed over the period 1971-96. The adjustment process is industry and time specific. The adjustment parameter is specified in terms of factors affecting the speed of adjustment. Industries are assumed to adjust their labour inputs towards a desired level of labour-use. A translog labour requirement function is specified in terms of observable variables and is used to model the desired level of labour-use. The labour requirement is specified to be function of wages, output, quasi-fixed capital stock and technology. The empirical results show that in the long run, employment demand responds greatest to value-added, followed by capital stock changes, and least by wages. The speed of adjustment in employment and the degree of labour-use efficiency show large variations among the sectors and over time.

Tingkat Upah, Inflasi dan Pengangguran: Aplikasi Model Lucas-Rapping terhadap Pasar Tenaga Kerja Indonesia Tahun 1960-2001

Lucas - Rapping model is considered as successful model to explain the labor force in America. We are apply this model on Indonesian case to analyze the fluctuation of labor force and to know wether the shift on labor supply and unemployment is a function of current real wage or not. We also intend to analyze behaviour of household to respond the real wage change. From demand side, we can trace out how deep the education role on labor force quality. The conclusion may be helpfull on determining appropriate policy on education sector. We use data from BPS including Indikator Ekonomi dan Keuangan, Statistik Ketenagakerjaan (Sakernas), Keadaan Pekerja/Karyawan di Indonesia, Survei Sosial dan Ekonomi Nasional (SUSENAS) or Survei Penduduk Nasional (Supas). The rest of data is collected from international sources such as Summers Hestona PennWorld Table, data Barro and Lee and data Bank Dunia.