Increase In Real Wages Research Articles

The Effect of Real Wages on Employment after the Global Financial Crisis: The Case of the Turkish Manufacturing Industry

This paper analyzes the effect of real wages on employment in the Turkish manufacturing industry after the 2008 global financial crisis. The effect was estimated for 24 manufacturing sectors using panel data analysis covering the period from 2009Q1 to 2019Q4. The panel cointegration results demonstrated a significant long-run relationship between real wages and employment, while the panel augmented mean group (AMG) estimator results indicated a significant long-run positive effect of real wages on employment. At the sectoral level, the effect was either insignificant or positive except for one sector. These findings indicate that an increase in real wages can raise employment by positively affecting the goods market and national income through the effective demand channel. That is, the manufacturing industry’s wage policies for enhancing effective demand can raise employment in Türkiye.

Analyzing the impact of population size, regional minimum wage, and economic growth on unemployment

The problem of unemployment is indeed very complex to discuss, because it can be related to several economic indicators that have a relationship with the open unemployment rate. The role of the government is needed to overcome the problem of unemployment in the region. Uncontrolled population numbers can result in not achieving economic development goals. The success of economic development can be seen from economic growth and the smaller inequality in an area, with the increasing economic development of a region, it is expected to be able to reduce the existing unemployment rate where welfare will be achieved properly. This study has a purpose: to analyze the effect of population, regional minimum wages, and economic growth on the open unemployment rate in Central Kalimantan. This study uses secondary data which is time series data from 2013-2019. Analysis of the data used is panel data with the help of the eviews program. The result of this study is that the variables of population, regional minimum wage, and economic growth have a positive effect on the open unemployment rate in Central Kalimantan. When the population increases and when real wages increase, companies will reduce the demand for labor, while the supply of labor is higher than the demand for labor, then this causes the unemployment rate to increase

Collective bargaining as a tool for real wage increases

Over the past three years, the cumulative Consumer Price Index in Bulgaria has reached nearly 35%, while inflation in the small consumer basket rose even more. Low and middle-income earners spend an ever-increasing proportion of their income on essential goods, which have risen significantly in price. Against this background, the trade unions in Bulgaria, through collective bargaining and negotiations at national level, have taken a number of actions. These have led to accelerated income growth that has largely offset the increase in the cost of living and prevented a loss of real purchasing power in the medium term. In Bulgaria, the presence of a collective agreement guarantees that the wage is at least 14% higher than in a situation in which there is none. The past inflationary crisis provides solid empirical information about the role of trade unions in the conditions of the imperfect commodity and labour markets in which the national economy is situated. Taking manufacturing as a focus, the author concludes that the number of challenges the industry has cannot be faced without an enhanced role for human capital.

Is there a virtuous cycle between wages and productivity? Turkish experience after the transition to democracy

We analyze the behavior of plant-level real wages and productivity in Turkish manufacturing after the transition to democracy in 1987 and test for the direction of the causality between these two variables. The Turkish experience is almost an experimental case because successive governments after 1987 let real wages increase rapidly under the pressure of intensifying political competition. Real wages in state-owned enterprises increased by nearly 200% from 1988 to 1993, followed by a 130% increase in real wages in private manufacturing. Our analysis shows that labor and total factor productivity increased at an unprecedented rate during the same period in response to the exogenous wage hikes. Econometric estimates provide strong empirical evidence supporting the hypothesis that there is a bi-directional relationship between wages and productivity, and wage increases do not reduce surplus because the increase in productivity (value added per worker) compensates for increasing wages.

Financial Transparency, Labor Productivity, and Real Wages: Evidence from Mandatory IFRS Adoption

ABSTRACT Financial transparency can affect labor markets directly by mitigating information asymmetries and optimizing the matching of heterogeneous firms and employees (matching efficiency channel) and indirectly through the effect of transparency on firms’ capital inputs (capital utilization channel). Exploiting the increase in financial transparency following the mandatory International Financial Reporting Standards (IFRS) adoption by European Union countries, we perform a battery of tests that indicate subsequent increases in labor productivity and real wages for manufacturing industries in member countries. More importantly, we find evidence that both channels are economically relevant in explaining gains in labor productivity and real wages following the mandatory IFRS adoption. Collectively, our results underscore that the benefits of an increase in transparency go beyond the effects on capital markets and corporate investments, with implications for the allocation of human resources across corporations.

법인세의 분배효과에 관한 연구

This study analyzes the effect of corporate income tax on income distribution in Korea. Studies on the economic effects of corporate income tax have mainly focused on investment and employment effects. This research trend is due to the prevailing idea that the investment effect of corporate income tax is decisive, employment and wages are determined incidentally, and that companies are merely conduits for distributing profits to shareholders. However, corporate income tax also affects the labor income share and household income distribution through changes in employment and wages, dividends, and internal reserve fund of a company. If corporate income tax cuts increase investment, but employment growth is weak and real wage growth rates falls short of labor productivity growth rates, the labor income share will decrease and household income inequality will widen. According to the results of the empirical research, the effects of corporate income tax rate on investment and employment are weak. The expanded investment is also capital-intensive, so the employment effect is not significant, and more the real wage increase does not keep up with labor productivity. As a result, a reduction in the effective corporate income tax rate lowers the labor income share and increases income inequality. Therefore, to increase the distribution effect of corporate income tax, corporate income tax should be reformed in a way that supports employment growth and real wage increases while including investment.

Indonesian capital city relocation and regional economy's transition toward less carbon-intensive economy: An inter-regional CGE analysis

Transitioning to a low-carbon economy can take various forms, one of which is structural change, particularly tertiarization. When the economic structure shifts from being dominated by sectors that rely heavily on fossil fuels to one that does not, the economy can become less carbon-intensive. The relocation of Indonesia's capital city from Jakarta to East Kalimantan is an example of how a traditionally resource-intensive regional economy may respond to the sudden emergence of a large-scale service sector, in this case, the government sector. This paper investigates how the capital city relocation may affect the destination region's economic structure using an inter-regional computable general equilibrium modeling. The model considers not only how different economic sectors are interconnected but also how sectors within one province are interconnected with sectors in other provinces. According to the findings, the relocation of the capital city increases the Gross Regional Domestic Product (GRDP) of the destination region (KalTim) by a massive amount (22%) while decreasing the GRDP of Jakarta (the old capital) by a moderate amount (7%). However, because the expanding sector is relatively high-skill intensive, it tends to produce skill-biased increases in real wages. As a result, the destination region (Kaltim) undergoes massive structural change as its service sector share increases by 12%, a change historically comparable in two decades. In addition, Kaltim's carbon emission intensity decreases by 18% due to this large-scale tertiarization. The analysis has demonstrated how and to what extent the relocation of Indonesia's capital city may help the province diversify from a natural resource-intensive economy to a more service-oriented and low-carbon economy.

Modeling the Impact of Public Infrastructure investments in the U.S.: A CGE Analysis

AbstractThis study offers a computable general equilibrium analysis of the $550 billion devoted to new infrastructure investment (new and remodeled physical infrastructure for transportation, information and public services) in the United States under the Infrastructure Investment and Jobs Act, a federal law signed by President Joseph Biden in November 2021. The simulations are based on the state-level distribution of funds and distinguish between the construction phase (short run) and the operational phase (long run). Gross domestic product (GDP) and labor demand react to the government spending stimulus after the first year by growing 0.24% and 0.44%, respectively. The gains derived from this investment plan are higher in the long term once investments increase the country’s capital stock; GDP increases by 1.39% and wages by 3.94%. This paper analyzes the efficiency of the current distribution of funds across sectors, and finds that the current distribution benefits the United States economy more. Even though a slightly higher GDP impact could have been reached (1.42%) if all the funds were devoted to transport services, the price increases would result in lower real wage increases.

Public sector wage bargaining and the balanced growth model: Denmark and Sweden compared

Denmark and Sweden are small open economies that rely on exports for economic growth. At the same time, these countries have some of the largest public sectors in the world and a high wage equality. With extensive collective bargaining and strong unions in both private and public sectors, coordination of wage setting is crucial for balancing competitiveness and real wage increases. This paper investigates how coordination between public sector and private sector wage setting in the two countries is achieved. Like other studies, we find that agreements in the manufacturing export sector set the pattern for public sector wage bargaining. However, we also find that institutional differences have significant distributive implications for public sector employees. In Denmark, wage increase disparities between the public and private sectors are automatically adjusted according to formalized procedures. In Sweden, no automatic adjustment exists, and coordination is instead based on tightly coordinated bargaining practices by unions and public sector employers. Surprisingly, we find most public sub-sector variation of wage increases in Denmark, whereas wage structures in Sweden have been very stable. We argue that timing of bargaining, level of private sector wage flexibility and politicization of public sector bargaining are key drivers for these distributional differences.

Análisis espacial de la dinámica del salario, flexibilidad y productividad laboral en las entidades federativas mexicanas, 2000.1-2021.1

The liberalization process in Mexico, which intensified with the North American Free Trade Agreement in 1994, brought changes in the structure of labor markets due to labor flexibilization. With information from the National Institute of Statistics and Geography and the Secretariat of Labor and Social Welfare, a spatial model of autoregressive vectors is estimated to analyze the impact that labor flexibility has had on real wages and productivity in the 32 states of Mexico. The model verifies that there is causality, in the Granger tests, between labor flexibility and wages, though the generalized impulses prove that this impact is negative in the majority of the 32 states. Evidence is presented that past labor flexibility, average labor productivity, and wages positively influence their future behavior; in addition to the fact that the wage increase of a particular state positively affects its neighbors (push-out effect) and, that this state is affected when an increase in real wage occurs in its neighbors (push-in effect).

Assessing the Social Impact of Corporations: Evidence from Management Control Interventions in the Supply Chain to Increase Worker Wages

ABSTRACTThis study examines an initiative by a large multinational garment retailer (H&M Group) to increase wages at its supplier factories by intervening in their wage‐related management practices. Difference‐in‐differences estimates based on eight years of data from over 1,800 factories show that the interventions were associated with an average real wage increase of approximately 5% by the third year of implementation. Our estimates suggest that the intervention‐associated wage increase was many times greater than if the retailer's cost for the program was instead paid directly to affected workers. We find that the wage effects were driven by factories with relatively poorer supplier ratings and do not find significantly different wage effects depending on the presence of trade unions. We also examine several nonwage outcomes such as factory orders, supplier price competitiveness, overtime pay, and total employment to probe the mechanisms underlying the wage increases. These findings offer new evidence on corporate social impact in global supply chains.

Estimating the economic impact of large hydropower projects: a dynamic multi-regional computable general equilibrium analysis

AbstractIn response to rapidly growing energy demands, Chinese authorities plan to invest more in hydropower development. However, there are concerns about the possible effects on macroeconomy. This paper uses SinoTERM, a dynamic multi-regional computable general equilibrium model (CGE) of the Chinese economy, to analyze the economic impact of large hydropower development projects. The model features regional labor market dynamics and an electricity subdivision module with substitutability between various types of electricity generation. The results suggest that hydropower development will boost economic growth in the project region. Most sectors in the project region will benefit from the hydropower development such as other services, health, and education, while some sectors will suffer a loss in output because of the substantial increase in real wages. For the national, every 10,000 yuan investment can drive the national GDP growth of 1,000 yuan, and the cost is expected to be recovered in ten years. By the end of 2040, the real national wage will be around 0.16% higher than the baseline scenario. The project could only be justified if net environmental benefits outweigh this loss.

Minimum Wages, Wages, and Price Pass-Through: The Case of McDonald’s Restaurants

Based on 2016–20 hourly wage rates of McDonald’s basic crew and Big Mac prices collected simultaneously from almost all US McDonald’s, we find that in 25% of instances of minimum wage increases, restaurants keep constant their wage premium above the increasing minimum wage. Higher minimum wages are not associated with faster adoption of touch-screen ordering, and there is near-full price pass-through of minimum wages. Minimum wage hikes lead to increases in real wages (expressed as how many Big Macs 1 hour of basic crew work can buy) that are one-fifth lower than the corresponding increases in nominal wages.

Estimating the economic impact of large hydropower projects: a dynamic multi-regional computable general equilibrium analysis

Abstract In response to rapidly growing energy demands, Chinese authorities plan to invest more in hydropower development. However, there are concerns about the possible effects on macroeconomy. This paper uses SinoTERM, a dynamic multi-regional computable general equilibrium model (CGE) of the Chinese economy, to analyze the economic impact of large hydropower development projects. The model features regional labor market dynamics and an electricity subdivision module with substitutability between various types of electricity generation. The results suggest that hydropower development will boost economic growth in the project region. Most sectors in the project region will benefit from the hydropower development such as other services, health, and education, while some sectors will suffer a loss in output because of the substantial increase in real wages. For the national, every 10,000 yuan investment can drive the national GDP growth of 1,000 yuan, and the cost is expected to be recovered in ten years. By the end of 2040, the real national wage will be around 0.16% higher than the baseline scenario. The project could only be justified if net environmental benefits outweigh this loss.

Supply in the Russian labor market: gender aspect

The article deals with the economic activity of the Russian population both in general and in the gender aspect. The main attention in the work is focused on the relationship between the economic activity of population and wages. The objectives of the work are, firstly, to identify differences in the behavior of men and women in the labor market in terms of economic activity, and, secondly, to test the hypothesis on the relationship between the economic activity of population and wages. The article provides an overview of the factors affecting the size of labor force and the level of participation in it, as well as statistical data reflecting male and female economic activity in modern Russia. Analysis of the labor activity dynamics leads to the conclusion that there are significant differences in male and female behavior in the labor market. The main cause of these differences is the traditional views of the population on the roles of men and women in society. Also the regression equations connecting the level of economic activity with the average real wage are determined both for the population of the Russian Federation as a whole, and for men and women separately. These equations can be considered as modified functions of the labor supply. Calculations have shown that, despite the general linear nature of the dependence of the economic activity level of population on real wages, its growth leads, ceteris paribus, to an accelerating increase in the activity of men and a slowing increase in the activity of women. The revealed low elasticity of labor supply functions indicates that any significant impact on the level of labor activity can only be provided by significant increase in real wages. First of all, the last statement applies to women.

The redistributive effects of pandemics: Evidence on the Spanish flu.

Which are the effects of pandemics on the returns to factors of production? Are these effects persistent over time? These questions have received renewed interest after the out-burst of deaths caused by Covid-19. The Spanish Flu is the closest pandemic to Covid-19. In this paper, we analyze the impact of the Spanish Flu on the returns to labor and capital in Spain. Spain is an ideal country to perform this exercise. First, the "excess death rate" was one of the largest in Western Europe and it varied substantially across regions. Second, Spain was transitioning towards industrialization, with regions in different stages of development. Third, Spain was developed enough to have reliable data. We identify the effect of the Spanish Flu by exploiting within-country variation in "excess death rate". Our main result is that the effect of the Spanish Flu on daily real wages was large, negative, and broadly short-lived. The effects are heterogeneous across occupations and regions. The negative effects are exacerbated in (i) occupations producing non-essential goods like shoemakers and (ii) more urbanized provinces. Quantitatively, relative to pre-1918, the decline for the average region ranges from null to around 30 percent. In addition, we fail to find significant negative effects of the flu on returns to capital. Whereas the results for dividends are imprecisely estimated (we cannot reject a null effect), the effect on real estate prices (houses and land), driven by the post-1918 recovery, is positive. Experts on inequality have argued that pandemics have equalizing effects especially in a Malthusian setting, due to real wage increases. Our findings suggest that, at least, for a developing economy like Spain in the early 20th century, this result does not apply. Indeed, we document that the flu pandemic was conducive to a (short-run) reduction in real wages. In addition, we interpret our heterogeneous results as suggestive evidence that pandemics represent a demand shock.

Regional labour market effects of immigration on low-skilled workers: the case of Sweden 1990–2003

PurposeThe purpose of this paper is to examine the effects of immigration on the labour market outcomes of low-educated natives (i.e. residents without a university diploma). Using the labour market competition theory, which argues that the labour market effects of natives depend on the skill set of immigrants, the paper addresses whether immigrants are complementary to or substitutes for native workers.Design/methodology/approachLongitudinal matched employer–employee data on Sweden are used to estimate how low-educated natives, in regions experiencing the greatest influx of refugees from the Balkan wars, responded to this supply shock with regard to real wages, employment and job mobility between 1990 and 2003.FindingsFirst, the analysis shows that low-educated native workers respond to the arrival of immigrants with an increase in real wages. Second, although employment prospects in general worsened for low-skilled workers in most regions, this is not attributable to the regions experiencing the largest supply shock. Third, there are indications that low-skilled natives in immigration-rich regions are more likely to change workplace, particularly in combination with moving upwards in the wage distribution.Originality/valueRather than seeing an emergence of the commonly perceived displacement mechanism when an economy is subject to a supply shock, the regional findings suggest that high inflows of immigrants tend to induce a mechanism that pulls native workers upwards in the wage distribution. This is important, as the proportion of immigrants is seldom evenly distributed within a nation.

Heterogeneous unit labor costs and profit margins in an economy with vintage capital: an amended neo-Kaleckian model

Post-Keynesian literature studying the impact of functional income distribution on economic activity and growth focuses on indirect demand effects (i.e., the consequences of real wage changes on aggregate demand components). The purpose of this article is to explore two points neglected by this literature. First, it ignores the direct supply effects corresponding to the impact of real wage changes on firms’ current profitability. Second, it does not explicitly take into account capital heterogeneity as a consequence of embodied technical progress. We, therefore, analyze the properties of a neo-Kaleckian model that includes both labor productivity differences between firms and the necessary condition of positive profits to engage in production. We show that the positive impact of real-wage increases on effective demand forces some firms to stop production because they become unprofitable. Moreover, the increase in effective demand can be impeded by the decrease in the capacity of profitable firms. Therefore, a recovery of economic activity through wage increases reaches its limits when profitable firms are at full capacity. The model also highlights the importance of technical competition and its role in firms’ behavior regarding capital replacement.

Rethinking Macro Measurement

Economists have long recognized that widely reported and followed economic indicators such as GDP, productivity, and real wage growth often fail to do a good job of capturing the concepts they purport to measure. And as the chief economist of Credit Suisse begins by noting in this article, this mismeasurement problem has been viewed as significant in the cases of inflation and inflation‐adjusted (or real) measures, and even more troubling in the case of productivity.Even before the onset of the COVID‐19 pandemic, the U.S. economy, as viewed through the lens of conventional macro statistics, was almost universally agreed to be struggling with pronounced demographic and productivity slowdowns. But if the slowdowns in nominal GDP and wage growth are indisputable, the author suggests that systematic overstatement of U.S. inflation may well have not only exaggerated the extent of such slowdowns, but obscured the possibility of actual increases in productivity and real wages during the past three or four decades.Along with the possible mismeasurement of some macroeconomic data, the author also discusses the ways in which macro measures tend to be misused. Though the limitations of macro data have long been understood by experts, the widespread use and uncritical acceptance of such numbers as representing concepts such as living standards, the cost of living, worker efficiency, technology growth, and welfare have very significant implications for today's policy debates and public assessment of the health of the economy. After discussing some of these measurement challenges and calling for greater acknowledgment of the limitations of conventional macro statistics by economists when citing them, the author suggests that “the prestige of national accounts data has likely peaked,” and better approaches appear to be emerging. Notable among such approaches are alternative measures, some spawned by the pandemic, that are improving how economists track the economy in real time and, in so doing, making possible “a deeper, more accurate, and more realistic view of economic activity.”

Are Real Wages Procyclical Conditional on a Monetary Policy Shock?

It is well-known that real wages are procyclical conditional on a monetary policy shock. This paper challenges this conventional view by using a quantitative heterogeneous-agent New Keynesian economy with sticky wages. In the model with benchmark calibration, the wage rate per effective unit of labor decreases following a monetary expansion, while the data-consistent real wages (average hourly earnings) increase. This implies that true real wages may be countercyclical conditional on a monetary policy shock, but the data may predict the wrong direction of real wages due to the inconsistent definition. Therefore, the predictions of New Keynesian models with wage rigidities are consistent with the data.