Model Of Wage Determination Research Articles

Compensating Wage Differentials in Labor Markets: Empirical Challenges and Applications

The model of compensating wage differentials is among the cornerstone models of equilibrium wage determination in labor economics. However, empirical estimates of compensating differentials have faced persistent credibility challenges. This article summarizes the Rosen model of compensating differentials and chronicles the advances, setbacks, and lessons learned from empirical studies. The progression from cross-sectional to panel models alleviated biases caused by unobserved human capital but yielded new insights into the importance of other biases, including those caused by labor market frictions and endogenous job mobility. I discuss recent approaches that use matched employer-employee data and quasi-random variation in job amenities to address some of these challenges. I then present two examples of applications of compensating differentials: the evaluation public health and safety policies that rely on the value of statistical life, and the measurement and interpretation of earnings inequality.

Training, productivity and wages: An investigation of China's manufacturing enterprises in a privatization era

AbstractWe estimated a structural model of production and wage determination in which labour quality can be affected by a firm's training decision using data of China's manufacturing enterprises in an era of privatization (2004–2007). Training increased both productivity and wages, but the former increased more, which explained the voluntary provision of on‐the‐job training. Our results also indicate that state‐controlled enterprises' investment in training could be both privately and socially efficient; unions played a role in promoting training; it might be more privately and socially efficient for manufacturing firms to prioritize training resources to lower‐educated, female and junior workers, if they had not done so, during privatization.

Union oligopoly and entry in the presence of homogeneous labor

Abstract. The analysis discusses the labor market equilibrium under union oligopoly, where unions represent homogeneous workers and use employment strategies. The following points are addressed: 1. The labor market outcomes in the presence of; a. uncooperative behavior among unions; b. uncooperative environment with a leading union; c. collusive (coordinated unions) behavior among unions; d. globally efficient bargaining, are confronted. A specific example with a Stone-Geary utility function and linear demand is forwarded. 2. Supply dynamics may push up employment and, therefore, the number of unions. In equilibrium, some bounds exist to the number of unions the market can support, which are investigated in the example. Five supply dynamics are considered: a. reservation wage restriction; b. a standard labor supply constraint; c. number of unions equal demand; d. individualistic unions; e. existence of a minimum (employed) membership requirement. The equilibrium number of unions for the Cournot-Nash, Stackelberg and efficient bargaining structures is derived for the case where unions exhibit Stone-Geary preferences and labor demand is linear. Keywords. Unions, Wage determination models, Union bargaining, Corporatism, Imperfect competition and union behavior. Union oligopoly. JEL. J51, E24, D49, C79.

Customer Discrimination in the Market for Physicians in the USA

In this paper I study the gender wage gap of self-employed physicians in the USA. The data from CTS Physicians survey show that self-employed female physicians earn 13% less than self-employed male physicians, but no such difference exists in the salaried sector. I develop a model of simultaneous wage determination in private practice and salaried sector in presence of customer discrimination. The model predicts that female physicians charge lower price than male physicians if there is customer discrimination in the market. The model also predicts adverse selection among male physicians in the hospital sector. Only the very low ability male physicians will work for hospitals who benefit from high ability female physicians in the workplace driving the wages up.

Unemployment and wages and centralization in wage bargaining: Some analytical explanations

Abstract. This paper discusses the relation between centralization in union bargaining and the wage-(un)employment mix. Empirical findings point to a positive relation between the degree of coordination in union bargaining and wages till a certain point, and a negative one afterwards. A theoretical argument fits such evidence, relying on the mechanism behind the free-rider problem in union bargaining. If earnings taxes were introduced to finance the unemployment insurance fund, that relation could change. The impact on the equilibrium wages and multipliers in the several scenarios is briefly explored. Indirectly, an explanation for the shape of the empirical “wage curve” is also derived. Keywords. Monopoly unions, Wage determination models, Union bargaining, Corporatism, Wage curve, Unemployment insurance. JEL. J51, J65, E24, E62, H55, H39, D42, D43.

Comparing micro-evidence on rent sharing from two different econometric models

The extent to which employers share rents with their employees is typically assessed by estimating the responsiveness of workers’ wages on firms’ ability to pay. This paper compares rent-sharing estimates using such a wage determination regression with estimates based on a productivity regression that relies on standard firm-level input and output data. Using a large matched firm-worker panel data sample for French manufacturing, we find that the respective industry distributions of the rent-sharing estimates are correlated and slightly overlap, but are significantly different on average. Precisely, if we only rely on the firm-level information, we obtain an average rent-sharing estimate of roughly 0.30 for the productivity regression and 0.17 for the wage determination regression. When we also take advantage of the worker-level information to control for unobserved worker ability in the model of wage determination, we find as expected a lower average value of 0.10.

Alcohol use and the wage returns to education and work experience.

Despite a widely held belief that alcohol use should negatively impact wages, much of the literature on the topic suggests a positive relationship between nonproblematic alcohol use and wages. Studies on the effect of alcohol use on educational attainment have also failed to find a consistent, negative effect of alcohol use on years of education. Thus, the connections between alcohol use, human capital, and wages remain a topic of debate in the literature. In this study, we use the 1997 cohort of the National Longitudinal Survey of Youth to estimate a theoretical model of wage determination that links alcohol use to wages via human capital. We find that nonbinge drinking is associated with lower wage returns to education whereas binge drinking is associated with increased wage returns to both education and work experience. We interpret these counterintuitive results as evidence that alcohol use affects wages through both the allocative and productive efficiency of human capital formation and that these effects operate in offsetting directions. We suggest that alcohol control policies should be more nuanced to target alcohol consumption in the contexts within which it causes harm.

Comparing Micro-Evidence on Rent Sharing from Two Different Econometric Models

Researchers contributing to the empirical rent-sharing literature have typically resorted to estimating the responsiveness of workers' wages on firms' ability to pay in order to assess the extent to which employers share rents with their employees. This paper compares rent-sharing estimates using such a wage determination regression with estimates based on a productivity regression that relies on standard firm-level input and output data. We view these two regressions as reduced-form equations stemming from, or at least compatible with, a variety of underlying theoretical structural models. Using a large matched firm-worker panel data sample for French manufacturing, we find that the industry distributions of the rent-sharing estimates based on them are significantly different on average, even if they slightly overlap and are correlated. Precisely, if we only rely on the firm-level information, we find that the median of the relative and absolute extent of rent-sharing parameters amount roughly to 0.40 and 0.30 for the productivity regression and to 0.20 and 0.16 for the wage determination regression. When we also take advantage of the worker-level information to control for unobserved worker ability in the model of wage determination, we find that these parameters further reduce as expected and have a median value of only about 0.10.

Comparing Micro-Evidence on Rent Sharing from Two Different Econometric Models

Researchers contributing to the empirical rent-sharing literature have typically resorted to estimating the responsiveness of workers' wages on firms' ability to pay in order to assess the extent to which employers share rents with their employees. This paper compares rent-sharing estimates using such a wage determination regression with estimates based on a productivity regression that relies on standard firm-level input and output data. We view these two regressions as reduced-form equations stemming from, or at least compatible with, a variety of underlying theoretical structural models. Using a large matched firm-worker panel data sample for French manufacturing, we find that the industry distributions of the rent-sharing estimates based on them are significantly different on average, even if they slightly overlap and are correlated. Precisely, if we only rely on the firm-level information, we find that the median of the relative and absolute extent of rent-sharing parameters amount roughly to 0.40 and 0.30 for the productivity regression and to 0.20 and 0.16 for the wage determination regression. When we also take advantage of the worker-level information to control for unobserved worker ability in the model of wage determination, we find that these parameters further reduce as expected and have a median value of only about 0.10.

A Model Study on the Effect of Housing Supply Elasticity on Labor Market

We develop a model of wage and rent determination that features spillovers from export-sector shocks to the market for locally produced (nontraded) goods and services, mediated by housing supply elasticities. Our model can explain stylized facts such as “gentrification” in major cities driven by shocks to industries in which those cities specialize.

Matching, sorting and wages

We develop an empirical search-matching model which is suitable for analyzing the wage, employment and welfare impact of regulation in a labor market with heterogeneous workers and jobs. To achieve this we develop an equilibrium model of wage determination and employment which extends the current literature on equilibrium wage determination with matching and provides a bridge between some of the most prominent macro models and microeconometric research. The model incorporates productivity shocks, long-term contracts, on-the-job search and counter-offers. Importantly, the model allows for the possibility of assortative matching between workers and jobs due to complementarities between worker and job characteristics. We use the model to estimate the potential gain from optimal regulation and we consider the potential gains and redistributive impacts from optimal unemployment benefit policy. Here optimal policy is defined as that which maximizes total output and home production, accounting for the various constraints that arise from search frictions. The model is estimated on the NLSY using the method of moments.

Wage Effects of Unionization and Occupational Licensing Coverage in the United States

Recent estimates in standard models of wage determination for both unionization and occupational licensing have shown wage effects that are similar across the two institutions. These cross-sectional estimates use specialized data sets, with small sample sizes, for the period 2006 to 2008. The authors’ analysis examines the impact of unions and licensing coverage on wage determination using new data collected on licensing statutes that are then linked to longitudinal data from the National Longitudinal Survey of Youth (NLSY79) from 1979 to 2010. They develop several approaches, using both cross-sectional and longitudinal analyses, to measure the impact of these two labor market institutions on wage determination. The estimates of the economic returns to union coverage are greater than those for licensing statutes.

Wage determination and imperfect competition

A striking feature of the past few decades has been the development of wage-determination models that assume that labor markets are imperfectly competitive. This paper discusses two such models (trade unions and oligopsony), although there are many more. It also asks if imperfectly competitive models should be used whenever researchers are modeling the labor market. Some people would argue for this only in cases when the predictions and comparative statics of the imperfectly competitive model differ from those of the competitive model. Of course, to know this, one needs to know precisely what the predictions and comparative statics of the respective models are. Moreover, for policymakers to be able to determine if an intervention is required in the first place, there does need to be some analytical framework to act as a guide. In the perfectly competitive model of the labor markets, for example, typically no intervention or regulation would be justified. However, labor economics has moved far beyond this position, with the incorporation of new ideas into modeling wage determination in imperfectly competitive labor markets, and with the availability of better datasets to facilitate empirical investigation.

Wage Determination and Imperfect Competition

A striking feature of the past few decades has been the development of wage determination models that assume that labour markets are imperfectly competitive. This paper discusses two such models (trade unions and oligopsony), although there are many more. It also asks if imperfectly competitive models should be used whenever researchers are modelling the labour market. Some people would argue for this only in cases when the predictions and comparative statics of the imperfectly competitive model differ from those of the competitive model. Of course, to know this, one needs to know precisely what the predictions and comparative statics of the respective models are. Moreover, for policymakers to be able to determine if an intervention is required in the first place, there does need to be some analytical framework to act as a guide. In the perfectly competitive model of the labour markets, for example, typically no intervention or regulation would be justified. However, labour economics has moved far beyond this position, with the incorporation of new ideas into modeling wage determination in imperfectly competitive labour markets, and with the availability of better datasets to facilitate empirical investigation.

Wage Determination and Imperfect Competition

A striking feature of the past few decades has been the development of wage-determination models that assume that labour markets are imperfectly competitive. This paper discusses two such models (trade unions and oligopsony), although there are many more. It also asks if imperfectly competitive models should be used whenever researchers are modelling the labour market. Some people would argue for this only in cases when the predictions and comparative statics of the imperfectly competitive model differ from those of the competitive model.Of course, to know this, one needs to know precisely what the predictions and comparative statics of the respective models are. Moreover, for policymakers to be able to determine if an intervention is required in the first place, there does need to be some analytical framework to act as a guide. In the perfectly competitive model of the labour markets, for example, typically no intervention or regulation would be justified. However, labour economics has moved far beyond this position, with the incorporation of new ideas into modeling wage determination in imperfectly competitive labour markets, and with the availability of better datasets to facilitate empirical investigation.

Sociological Theories of Low-Wage Work

This review addresses the use of sociological theories in the examination of low-wage work. Due to the vast volume of literature on this topic, only theories that help to explain the dynamics of low-wage work are described, along with the differences and controversies surrounding these theories. These theories are divided into four topic areas related to theories of work, racial and gender theories, immigration theories, and intersectionality theory. The theories of work include different models of wage determination, namely, functional, conflict, and structural models. The review concludes with a conceptual map that illustrates how these theories can inform and guide practice.

Mismatch, Sorting and Wage Dynamics

We develop an empirical search-matching model which is suitable for analyzing the wage, employment and welfare impact of regulation in a labor market with heterogeneous workers and jobs. To achieve this we develop an equilibrium model of wage determination and employment which extends the current literature on equilibrium wage determination with matching and provides a bridge between some of the most prominent macro models and microeconometric research. The model incorporates productivity shocks, long-term contracts, on-the-job search and counter-offers. Importantly, the model allows for the possibility of assortative matching between workers and jobs due to complementarities between worker and job characteristics. We use the model to estimate the potential gain from optimal regulation and we consider the potential gains and redistributive impacts from optimal unemployment insurance policy. The model is estimated on the NLSY using the method of moments.

Some Coasian Problems with Posnerian Law and Economics

The methodological approaches of Ronald Coase and Richard Posner are compared and contrasted with regard to microeconomic theory and its application to law and economics. The central divide is whether positive transaction cost requires a major reworking of the core of neoclassical price theory (Coase: yes; Posner: no). To provide evidence on this matter, the paper examines Posner’s well-know treatise Economic Analysis of Law and, in particular, his use of two basic price theory tools (downward sloping demand curve; competitive model of demand/supply) for positive and normative analysis of labor markets and labor law. Neither construct is found robust with respect to variation in transaction cost. An alternative positive transaction cost representation of labor demand and wage determination models also reveals that Posner’s conclusions on the efficiency effects of various laws and regulations are not well-grounded. The conclusion, as Coase put forward in his Nobel address, is that core tools of microeconomics are contingent on transaction cost and the institutional structure of production.

UNIONS' RELATIVE CONCERNS AND STRIKES IN WAGE BARGAINING

ABSTRACTWe consider a model of wage determination with private information in an oligopoly. We investigate the effects of unions having relative concerns on the negotiated wage and the strike activity. We show that an increase of unions’ relative concerns has an ambiguous effect on the strike activity.

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