High-wage Workers Research Articles

The multi-dimensional effects of reciprocity on worker effort: evidence from a hybrid field-laboratory labour market experiment

We examine the gift exchange hypothesis on both the quantity and quality of work using a hybrid field-laboratory labour market experiment. We recruited participants to enter survey data for a well-known charitable organisation. Workers were paid either a high or low wage. We find that although the total number of surveys entered did not vary in terms of wages, high wage workers made fewer errors and entered more surveys after controlling for errors. We further find that for low costs associated with errors, offering a low wage maximises profits; but for higher costs, paying a high ‘gift exchange’ wage maximises profits.

Disentangling retirement and savings responses

In January 2006, the Dutch government implemented a pension reform that substantially reduced the public pension wealth of workers born in 1950 or later. At the same time, a tax-facilitated savings plan was introduced that implied a large savings subsidy for all workers, irrespective of birth year. This paper uses linked administrative and survey data to assess the effect of the reform on the savings and retirement expectations and realizations of two virtually identical male cohorts that differ only in treatment status, the treated having been born in 1950 and the controls having been born in 1949. We show that retirement expectations are in line with realizations and that the reform increased the labor supply for the larger part of the workers, namely, those without sufficient means to substantially increase private savings to counter the effect of the reform. These workers have zero substitution rates between private and public wealth. On the other hand, there is a group of mostly high-wage workers who participate in the tax-facilitated savings plan and increase their private savings to fully counter the impact of the drop in public wealth. An unintended side effect of the introduction of the tax-facilitated savings plan is that high-wage earners who are not affected by the drop in pension wealth retire even sooner than initially planned.

Disentangling Retirement and Savings Responses

In January 2006, the Dutch government implemented a pension reform that substantially reduced the public pension wealth of workers born in 1950 or later. At the same time, a tax-facilitated savings plan was introduced that implied a large savings subsidy for all workers, irrespective of birth year. This paper uses linked administrative and survey data to assess the effect of the reform on the savings and retirement expectations and realizations of two virtually identical male cohorts that differ only in treatment status, the treated having been born in 1950 and the controls having been born in 1949. We show that retirement expectations are in line with realizations and that the reform increased the labor supply for the larger part of the workers, namely, those without sufficient means to substantially increase private savings to counter the effect of the reform. These workers have zero substitution rates between private and public wealth. On the other hand, there is a group of mostly high-wage workers who participate in the tax-facilitated savings plan and increase their private savings to fully counter the impact of the drop in public wealth. An unintended side effect of the introduction of the tax-facilitated savings plan is that high-wage earners who are not affected by the drop in pension wealth retire even sooner than initially planned.

The Evolution of the Occupational Structure in Italy, 2007–2017

Many advanced economies have experienced significant job polarization in the last decades, with an increase in the employment share and relative wage of both low-wage and high-wage workers at the expense of middle-wage workers. This polarization has probably been spurred by the substitution of routine-intensive labour with automation and information and communication technologies. This paper explores whether the Italian labour market has experienced similar patterns and, if so, whether they are the consequence of a pure technology-driven shock. The evidence is mixed. While the share of low-wage manual occupations has increased markedly, that of high-wage professional occupations has fallen slightly. The share of middle-wage jobs has declined significantly but, unlike the case of the US, the wages have not. Regression analyses based on occupational task characteristics (Goos et al. in Am Econ Rev 104(8): 2509–2526, 2014) do not fully align with the routine-biased technical change hypothesis either, consistently with the limited adoption of automation technology in Italy. Among the most likely factors, cross-sector reallocation, which favoured the low value added service sector, and the rise of low skilled migrant and college graduate labour supply explain most of the observed occupational changes.

Gender Wage Gap in Hospitality

This article analyzes the gender wage gap in the hospitality sector. First, it explores whether the gender wage gap is partly explained by the economic sector. Second, it measures how this gap changes across the wage distribution using quantile regression. Third, it decomposes the gender wage gap in the hospitality sector to distinguish which part can be explained by observed attributes and which part is explained by other factors (unobserved characteristics or gender discrimination). Methodologically, this article introduces the use of quantile regression to the analysis of the gender wage gap and its decomposition in the hospitality sector. The main findings are as follows. First, on average in the hospitality sector, wages (without taking into account worker skills) are below the overall average wages. However, if a deeper look is taken, this research reveals that unskilled workers are better paid in hospitality than in most of the other sectors. The opposite is true for skilled workers, since mid- and high-wage workers in the hospitality sector receive wages below their counterparts in other sectors. Second, the gender wage gap is particularly low in the hospitality sector and the gap changes across the wage distribution. Third, a large part of the gender wage gap in hospitality is not explained by worker or company characteristics. The segregation of women into worse-paid jobs and gender discrimination (or unobserved characteristics) seem to be the main sources of the gender wage gap.

Do Pensions Matter for Recruiting State and Local Workers?

Many state and local governments have responded to financial challenges facing their pension systems by cutting benefits or by shifting costs to employees. Will these changes make it harder for state and local governments to recruit highly skilled workers? This study explores this question by linking individual-level data from the Current Population Survey on worker transitions between the private and public sectors to measures of state and local pension generosity from the Public Plans Database. The results suggest that state and local employers with relatively generous pensions are better able to recruit high-wage workers from the private sector, but that this advantage is lost as workers are asked to contribute more from current paychecks to prefund those benefits. The findings help inform an ongoing debate over the role that state and local pensions play in shaping the public workforce.

Who Can Work from Home?

In response to the COVID-19 pandemic, many states have adopted stay-at-home orders, rendering a large segment of the workforce unable to continue doing their jobs. These policies have distributional consequences, as workers in some occupations may be better able to continue their work from home. I identify the segments of the U.S. workforce that can plausibly work from home by linking occupation data from O*NET to the American Community Survey. I find that lower-wage workers are up to three times less likely to be able to work from home than higher-wage workers. Those with lower levels of education, younger adults, ethnic minorities, and immigrants are also concentrated in occupations that are less likely to be performed from home.

How Much Should We Trust Estimates of Firm Effects and Worker Sorting?

Many studies use matched employer-employee data to estimate a statistical model of earnings determination where log-earnings are expressed as the sum of worker effects, firm effects, covariates, and idiosyncratic error terms. Estimates based on this model have produced two influential yet controversial conclusions. First, firm effects typically explain around 20% of the variance of log-earnings, pointing to the importance of firm-specific wage-setting for earnings inequality. Second, the correlation between firm and worker effects is often small and sometimes negative, indicating little if any sorting of high-wage workers to high-paying firms. The objective of this paper is to assess the sensitivity of these conclusions to the biases that arise because of limited mobility of workers across firms. We use employer-employee data from the US and several European countries while taking advantage of both fixed-effects and random-effects methods for bias-correction. We find that limited mobility bias is severe and that bias-correction is important. Once one corrects for limited mobility bias, firm effects dispersion matters less for earnings inequality and worker sorting becomes always positive and typically strong. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Twisting the Demand Curve: Digitalization and the Older Workforce

This paper uses U.S. Census Bureau panel data that link firm software investment to worker earnings. We regress the log of earnings of workers by age group on the software investment by their employing firm. To unpack the potential causal factors for differential software effects by age group we extend the AKM framework by including job-spell fixed effects that allow for a correlation between the worker-firm match and age and by including time-varying firm effects that allow for a correlation between wage-enhancing productivity shocks and software investments. Within job-spell, software capital raises earnings at a rate that declines post age 50 to about zero after age 65. By contrast, the effects of non-IT equipment investment on earnings increase for workers post age 50. The difference between the software and non-IT equipment effects suggests that our results are attributable to the technology rather than to age-related bargaining power. Our data further show that software capital increases the earnings of high-wage workers relative to low-wage workers and the earnings in high-wage firms relative to low-wage firms, and may thus widen earnings inequality within and across firms.

How Much Should We Trust Estimates of Firm Effects and Worker Sorting?

Many studies use matched employer-employee data to estimate a statistical model of earnings determination where log-earnings are expressed as the sum of worker effects, firm effects, covariates, and idiosyncratic error terms. Estimates based on this model have produced two influential yet controversial conclusions. First, firm effects typically explain around 20% of the variance of log-earnings, pointing to the importance of firm-specific wage-setting for earnings inequality. Second, the correlation between firm and worker effects is often small and sometimes negative, indicating little if any sorting of high-wage workers to high-paying firms. The objective of this paper is to assess the sensitivity of these conclusions to the biases that arise because of limited mobility of workers across firms. We use employer-employee data from the US and several European countries while taking advantage of both fixed-effects and random-effects methods for bias-correction. We find that limited mobility bias is severe and that bias-correction is important. Once one corrects for limited mobility bias, firm effects dispersion matters less for earnings inequality and worker sorting becomes always positive and typically strong.

Destructive Creation at Work: How Financial Distress Spurs Entrepreneurship.

Using U.S. Census firm-worker data, I document that firms' financial distress has an economically important effect on employee departures to entrepreneurship. The impact is amplified in the high-tech and service sectors, where employees are key assets. In states with enforceable noncompete contracts, the effect is mitigated. Compared to typical entrepreneurs, distress-driven entrepreneurs are high-wage workers who found better firms, as measured by jobs, pay, and survival. Startup jobs compensate for 33% of job losses at the constrained incumbents. Overall, the financial inability of incumbent firms to pursue productive opportunities increases the reallocation of economic activity into new firms. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Short-term contracts and their effect on wages in Indian regular wage employment

The increase in regular wage employment in the Indian economy between 2004–2005 and 2011–2012 was accompanied by a significant deterioration in job security; more workers found themselves on short-term and insecure contracts – a continuing trend. Insecurity of tenure results in a significant wage penalty for short-term workers, compared with those with longer term contracts. This article estimates the negative effect of short-term contracts on the wages of Indian regular wage workers all along the income distribution – unlike earlier studies – using the method of unconditional quantile regressions on data from the 68th round and the 61st round of the National Sample Survey Organisation on Employment covering the period 2004–2005 and 2011–2012. It finds that the wage penalty due to short-term contracts is higher for high-wage workers than for low-wage workers, with the maximum impact felt by median wage workers, and has increased for higher paid workers from 2004–2005 to 2011–2012. The spread of informal employment arrangements within India’s formal labour markets has resulted in an increasingly unequal distribution of workers’ access to the benefits of growth, reflecting a shift in power in favour of capital. These findings, specific to a developing economy like India, stand in contrast with studies in European countries, where high-wage workers do not face as much of a penalty for short-term contract work as low-wage workers. JEL Codes: J31, J41

Paradoxical Impact of a Patient-Handling Intervention on Injury Rate Disparity Among Hospital Workers.

To test whether a comprehensive safe patient-handling intervention, which successfully reduced overall injury rates among hospital workers in a prior study, was differentially effective for higher-wage workers (nurses) versus low-wage workers (patient care associates [PCAs]). Data were from a cohort of nurses and PCAs at 2 large hospitals in Boston, Massachusetts. One hospital received the intervention in 2013; the other did not. Using longitudinal survey data from 2012 and 2014 plus longitudinal administrative injury and payroll data, we tested for socioeconomic differences in changes in self-reported safe patient-handling practices, and for socioeconomic differences in changes in injury rates using administrative data. After the intervention, improvements in self-reported patient-handling practices were equivalent for PCAs and for nurses. However, in administrative data, lifting and exertion injuries decreased among nurses (rate ratio [RR] = 0.64; 95% confidence interval [CI] = 0.41, 1.00) but not PCAs (RR = 1.10; 95% CI = 0.74,1.63; P for occupation × intervention interaction = 0.02). Although the population-level injury rate decreased after the intervention, most improvements were among higher-wage workers, widening the socioeconomic gap in injury and exemplifying the inequality paradox. Results have implications for public health intervention development, implementation, and analysis.

The Evolution of the Occupational Structure in Italy in the Last Decade

Many advanced economies have experienced significant job polarization in the last decades, with an increase in the employment share and relative wage of both low-wage and high-wage workers at the expense of middle-wage workers. This polarization has probably been spurred by the substitution of routine-intensive labour with automation and information and communication technologies. This note explores whether the Italian labour market has experienced similar patterns and, if so, whether they are the consequence of a pure technology-driven shock. The evidence is mixed. While the share of low-wage manual occupations has increased markedly, that of high-wage professional occupations has fallen slightly. The share of middle-wage jobs has declined significantly but, unlike the case of the US, the wages have not. Regression analyses based on occupational task characteristics (Goos et al., 2014) do not fully align with the routine-biased technical change hypothesis either, consistently with the limited adoption of automation technology in Italy. Among the most likely factors, cross-sector reallocation, which favoured the low value added service sector, and the rise of low skilled migrant and college graduate labour supply explain most of the observed occupational changes.

Job Polarization, Structural Transformation and Biased Technological Change

By reviewing our work in Bárány, Siegel (2018a, 2018b), this article emphasizes the link between job polarization and structural change. We summarize evidence that job polarization in the United States has started as early as the 1950s: middle-wage workers have been losing both in terms of employment and average wage growth compared to low- and high-wage workers. Furthermore, at least since the 1960s the same patterns for both employment and wages have been discernible in terms of three broad sectors: low-skilled services, manufacturing and high-skilled services, and these two phenomena are closely linked. Finally, we propose a model where technology evolves at the sector-occupation cell level that can capture the employment reallocation across sectors, occupations, and within sectors. We show that this framework can be used to assess what type of biased technological change is the driver of the observed reallocations. The data suggests that technological change has been biased not only across occupations or sectors, but also across sector-occupation cells.

Inequality through wage response to the business cycle–Evidence from the FFL decomposition method

This study explores the change in wage response to the business cycle and resultant wage inequality. First, we find that the pro-cyclical relationship between wage and business cycle has weakened among low-income earners after the late 1990s, despite the fact that wages of low earners had been vulnerable to the business cycle fluctuations before this period, using the Firpo, Fortin, and Lemieux decomposition method. Second, our empirical analyses using the DiNardo, Fortin, and Lemieux decomposition method confirm that the change contributed to mitigating wage inequality among employed people in the subsequent recessions such as the 2008 global financial crisis. This could be explained by the structural changes in Japanese employment system triggered by the financial crisis in 1997, which turned firms’ attitude towards downsizing more aggressive than before. This change affected mainly low-income earners who tend to belong to the secondary segment, while the wages and job security of the high-wage workers who mainly belong to the primary segment have stayed stable even after the structural changes. As a result, employment adjustment has dominated wage adjustment for the low-income earners after the change in the employment practice, which led to the results found in this study.

The Gender Wage Gap in the Vietnamese Transition, 1993–2008

This essay examines wages and the gender wage gap between 1993 and 2008 in Vietnam. Our results reveal a slight increase in the mean of the gender wage gap from 2002 to 2008, which is mainly driven by a sharp increase in the gender wage gap for low-wage workers. Decomposition results suggest that the major part of the gender wage gap attributes to gender discrimination. While gender discrimination decreases for high-wage workers, it increases for low-wage workers. Over the period, wage growth is partly explained by changes in average characteristics but mainly due to increasing returns.

Firming Up Inequality*

AbstractWe use a massive, matched employer-employee database for the United States to analyze the contribution of firms to the rise in earnings inequality from 1978 to 2013. We find that one-third of the rise in the variance of (log) earnings occurred within firms, whereas two-thirds of the rise occurred due to a rise in the dispersion of average earnings between firms. However, this rising between-firm variance is not accounted for by the firms themselves but by a widening gap between firms in the composition of their workers. This compositional change can be split into two roughly equal parts: high-wage workers became increasingly likely to work in high-wage firms (i.e., sorting increased), and high-wage workers became increasingly likely to work with each other (i.e., segregation rose). In contrast, we do not find a rise in the variance of firm-specific pay once we control for the worker composition in firms. Finally, we find that two-thirds of the rise in the within-firm variance of earnings occurred within mega (10,000+ employee) firms, which saw a particularly large increase in the variance of earnings compared with smaller firms.

The joint labor supply decision of married couples and the U.S. Social Security pension system

The current U.S. Social Security program redistributes resources from high-wage workers to low-wage workers through its progressive benefits schedule and from two-earner married couples and single workers to one-earner married couples through the program's spousal and survivors benefits. This paper extends a standard general-equilibrium overlapping-generations model with uninsurable wage shocks to analyze the effect of spousal and survivors benefits on the labor supply of married households and the overall economy. The heterogeneous-agent model calibrated to the U.S. economy predicts that removing spousal and survivors benefits would increase the female labor participation rate by 1.5–1.6%, women's total work hours by 1.7–1.8%, and the total output of the economy by 0.5–0.6% in the long run. A phased-in cohort-by-cohort removal of these benefits would make all age cohorts, on average, better off under the balanced-budget assumption, although the policy change would make the majority of young married households worse off in the short run.

The sources of wage variation and the direction of assortative matching: Evidence from a three-way high-dimensional fixed effects regression model

This paper estimates a wage equation with three high-dimensional fixed effects, using a longitudinal matched employer-employee dataset covering virtually all Portuguese private sector wage earners over a 26-year interval. First, the variation in log real hourly wages is decomposed into three components reflecting worker, firm, and job title characteristics and a residual element. It is found that worker permanent heterogeneity is the most important source of wage variation accounting for one third of the wage variance, while firm permanent effects contribute one fourth. Job title fixed effects still explain a considerable one fifth of wage variance. Second, having established that high-wage workers tend to match with high-paying firms, worker fixed effects from the wage equation are next correlated with firm fixed effects from sales and value-added production equations to provide unambiguous evidence on the sign and strength of assortative matching. The correlations are positive and large, indicating that higher productivity workers tend to match with higher productivity firms.