Model Of Wage Determination Research Articles

Wage indexation, turnover, and nominal-wage changes in Brazilian manufacturing, 1966–1976

This paper estimates the short-run impact of wage indexation on monthly nominal-wage changes in two Brazilian manufacturing industries between 1966 and 1976. A policy and market-force wage determination model is estimated. The model includes variables that capture the effects of the annual collective wage adjustment, the regional minimum wage, demand, and inflation. Monthly data allow identification of the month of impact of the indexation coefficients. Results suggest that indexation does not fully set wages and support the hypothesis that wages rise between formal adjustments in response to economic forces. Intra-period wage drift is possible because of turnover and recontracting in the labor market.

The Impact of Incomes Policy on Aggregate Wage Determination in Australia*

A model of aggregate wage determination for Australia is developed and used to examine the effects of incomes policies on the level of real wages. A theoretical model of wage determination which includes several channels of incomes policy effects is specified and estimated using aggregate data. The results provide strong evidence to support the view that during periods of certain incomes policies there have been important changes in behaviour in the Australian labour market. In particular, during the period of the Prices and Incomes Accord it is estimated that equilibrium real wages were over 5 per cent below what would have been expected from previous experience.

Black trade unions and the wage gap in South Africa

AbstractThis paper puts forward a model of real wage determination for black workers in South Africa. The model is fitted to data for mining and manufacturing for the post‐war period. It is found that since 1980 the rise of black trade unions has been a major factor underlying wage increases in manufacturing. In the 1970s, rising gold prices and reduced foreign labour supplies were favourable for mining labour, and in both industries pass law limitations on mobility are found to have lowered balck wages.

Self-employment vs wage employment: Estimation of earnings functions in LDCs

This study incorporates occupational choice into a model of wage determination in wage and self-employed activities. The self-selection model emphasizes managerial ability and capital market imperfections in determining whether an individual chooses between wage and self-employment. Using Heckman's correction for sample selection bias, the results show no bias in the OLS estimates but find that the two groups have different earnings structure. The results for employees confirm the robustness of the human capital model but the model explains only a small fraction of the variation of self-employed earnings.

Wage Determination for Regular Hired Farm Workers: An Empirical Analysis for Georgia

AbstractRegular hired farm workers, performing 150 days or more of farm work annually, became increasingly important in the 1970's. The number of regular hired workers in the United States increased by almost 50 percent during the decade, while the number of seasonal workers, operators, and unpaid family workers declined. Pricing of regular hired labor is investigated through estimation of three nested wage determination models in a case study analysis for Georgia. Micro-level data on individual workers were used to analyze the effects of general human capital, farm worker duties, local labor market conditions, and farm characteristics on wage rates.

Bargaining Power, Fear of Disagreement, and Wage Settlements: Theory and Evidence from U.S. Industry

The paper develops and estimates a theoretical model of wage determination and union-nonunion wage differentials. In order to overcome the institutional ctiticisms of the formal bargaining literature, the paper generalizes the Nash-Zeuthen-Harsanyi model by linking the solution to the institutional concepts of bargaining power and fear or cost of disagreement and by making the outcome depend not only on endogenous but also on exogenous factors. An operational specification of bargaining power and fear of disagreement allows the model to be estimated with data covering twelve companies and trade unions during the period from mid-1950's to the late 1970's. While giving limited support to the NashZeuthen-Harsanyi solution, the empirical analysis indicates that the bargaining outcome usually deviates from the Nash-Zeuthen-Harsanyi point and, in accordance with the institutionalist claim, that it varies significantly with exogenous factors. Contrary to the traditional labor economics view, the results do not support the general conclusion that the bargaining solution lies on the marginal revenue product curve of labor. Instead, the relevant coefficients suggest that for many firms and unions the outcome might be better characterized by the efficient contract (vertical contract curve).

Differential effects of industrial and worker resources on women's wages

A developing body of literature within the sociological examination of income equality has established the significance of industrial and worker resources in the determination of wages. However, there is little available information regarding the uniformity of their effects across different types of workers. This paper attempts to specify the ways in which various resources affect the wage rates of several categories of women workers. The major thesis is that resources produce differential payoffs depending on the location of the worker on various dimensions of stratification. Wage determination among women is hypothesized to vary by age, race, and occupational group. Hypotheses concerning the relative effects of worker and industrial resources on two age groups of black and white women in blue-collar and white-collar occupations are tested. Data from the National Longitudinal Studies of the Labor Market Experiences of Women are used to test models of wage determination among these different groups of women workers. In general, our results suggest that stratification is an important mechanism linking resources to wages and should be incorporated into the resource perspective of labor outcomes.

Methodologies of Valuing Lost Earnings: A Review, a Criticism, and a Recommendation

Methodologies of Valuing Lost Earnings: A Review, a Criticism, and a Recommendation

Continuity and Change in Australian Wages Policy

AbstractAustralia shares with several small European economies the characteristic of having a relatively coordinated union movement with the ability to influence real wage levels. This article explores the course of wages policy over the last decade by applying to Australia a model of wage determination originating in Europe, a model which assumes that the union movement can determine the real wage level. The wage level the union movement chooses is influenced by choices it faces between real wage increases and employment growth. The unions are also influenced by the public sector employment generating activity of government. Stagflation in the late 1970s is analysed by hypothesising a misperception by the union movement of the policy options available to government, and a mistrust by government of the unions' willingness to moderate wage increases if employment levels rise rapidly. The model suggests that an accord between unions and government (such as that which has been in place in Australia since 1983) is a way to escape some of these policy dilemmas.

The Endogeneity of Union Status: An Empirical Test

An unsettled issue in the literature relating to the relative wage effect of unions is the appropriate treatment of union status in a wage determination model. In the context of a three-equation model determining union membership and union- and nonunion-sector wage rates, this paper presents an instrumental variables (IV) procedure for estimating the parameters of the wage equations and a test of the exogeneity of union status using the Hausman specification test. An advantage of our IV procedure in comparison to the widely used inverse Mill's ratio procedure is that our procedure is a distribution-free estimator, whereas the inverse Mill's ratio estimator hinges in the assumption that the error term of the choice equation is normally distributed. Using data for a sample of middle-aged white workers, we estimate the parameters of the union and nonunion wage equations with both procedures. On the key question of the endogeneity of union status, the Hausman test decisively rejects the null hypothesis of exo...

Market power in a billateral monopoly model of industry wage determination

A variant of the Hicksian bilateral monopoly model is constucted. We show that market power can, in principle, affect the rate of change of money wages quite independently of unemployment, hence deserves a place in the derived wage equation, contrary to the postulate of the excess demand model. Our modified Hicksian model is submitted to a test and found to be consistent with the empirical evidence. Finally, some implications for the Phillips curve analysis are discussed.

Structural Balance of Trade Deficits in a Small Open Economy with Exogenous Capital Flows: A Monetary Approach*

This paper presents a ‘structural’ balance of trade model which can be interpreted as combining two major building blocks. The first one is identical to the monetary approach to the balance of payments. The second, which explains the price level, consists of the orthodox Scandinavian model of price and wage determination. It is shown that under these assumptions the balance of trade deficit can be broken down into a structural, an imported, and a ‘home‐made’ component. A n empirical illustration of the structural balance of trade model is given for the New Zealand economy.

The Gross Earnings Deflator

In many Western countries, it is felt that it is desirable to switch the tax burden somewhat from direct to indirect taxation. Proposals to introduce a Value Added Tax (VAT) in substitution for income-based taxes have been widely canvassed in, for example, the United States, Australia and New Zealand. A major obstacle to the implementation of these schemes is concern for the effect of such a switch on price indices. In the United States, 'the treatment of the value added tax in official index numbers, especially the consumer price index, might be an important issue were the tax to be adopted here' (Aaron, I98I, p. I 3). In New Zealand, 'the Task Force is aware that a shift from direct to indirect taxation is bound to have effects on prices and incomes. These effects could be inflationary, in immediate impact, and perhaps induce continuing effects' (McCaw, I982, para. 3.8). Since an index should not in itself be an objective of economic policy, such concern may seem absurd. However both casual empiricism and the specification of most empirical models of wage determination suggest that past movements in price indices influence the level of wage settlements. It follows that a change in the tax structure may have inflationary implications beyond its direct effect on price levels. The reason for this is that price indices are used in wage negotiations in an inappropriate way. A consumer price index measures the change in net money expenditure required to maintain the purchasing power of that expenditure. Wage negotiations, however, are concerned with gross incomes. The relevant benchmark against which movements in real wages are to be measured is not the purchasing power of net expenditure but the purchasing power of gross income. In Britain in I 979 a Conservative government was elected with a policy of implementing a major shiftfrom direct to indirect taxation. They raised the standard rate of VAT from 8 to I5 %, and made compensating changes to income tax whose net effect was to leave the tax burden on the majority of the population virtually unchanged (Kay and Morris, Ig79 a). The shift was estimated to raise the Retail Price Index (RPI) by approximately 4 %. This led to political criticism of the use of the RPI in wage negotiations, and to the publication of a new official index, the Tax and Prices Index (TPI). The basic principle behind such an index is simple enough. While a measure such as the RPI asks the question 'what increase in money expenditure is required to enable a household to continue buying a representative bundle of goods?', the TPI asks 'what increase in gross income is required to enable a household to continue buying a representative bundle of goods?' However, the realisation of an index of this type raises a number of difficulties. In particular, [ 357 ]

Accuracy of Response in Labor Market Surveys: Evidence and Implications

This paper examines the extent of response errors in labor market survey data and explores the implications of such errors for economic analysis. Explicitly examined are responses to questions on industry, occupation, union status, hours worked, and wages. Analyses are based on two sources: (1) a special supplement to the January 1977 Current Population Survey that obtained data from workers and their employers and (2) an exact match of workers and their employers interviewed in the Employment Opportunity Pilot Project Survey. The dual nature of these surveys provides a basis for analyzing the effect of response error on a variety of economic analyses including the trade-off between wages and risk, the wage impact of unionism, and the sensitivity of wage-determination models to alternative responses to earnings questions.

A Hicksian Model of Labour Turnover and Local Wage Determination

Employers have a variety of reasons for attempting to stabilize turnover in their labour force. For example, specific skill requirements, the added costs of training inherent in hiring new workers, and the absolute demand for labour may stimulate firms to minimize labour turnover. One way of reducing turnover is for the individual firm to raise its wage rates. However, depending upon the relative tightness of the local labour market (reflected in the rates of hiring and unemployment), this could result in widespread wage competition amongst employers and general increases in the aggregate local wage rate. The significance of quits, hires, and unemployment are explored, in an attempt to explain differential urban wage inflation in the United States. Emphasis is placed on Hicks's model of labour turnover which emphasizes the firm's management of its labour needs. This model is analysed in a time-series framework over the period 1970–1979; a decade of rapid inflation and general stagnation in the United States.

The Demand and Supply of Labor and Interstate Relative Wages: An Empirical Analysis

The impact of labor on interstate wage relativities are analyzed in this paper. Migration, unemployment, and employment growth related variables are integrated into a short- and long-run time-series model of relative wage determination. It is found that in and out gross migration may increase or decrease relative wages as may employment growth. As expected, increasing unemployment tends to induce decreases in average relative wages. The model is analyzed over the period 1958-1975 using data derived from the Continuous Work History Sample of the Social Security Administration.

Political and economic determinants of county government pay

With rare exceptions the literature on wage determination in the public sector has focused upon the impact of collective bargaining. (Shapiro, 1978; Freund, 1974; Ashenfelter, 1971; Ehrenberg, 1972). On the other hand, there is a more limited discussion of government wage determination which implicitly assumes the existence of a social welfare function which generates labor demand curves from equating social marginal rates of substitution to relative factor price ratios (Ehrenberg, 1972; Ashenfelter and Ehrenberg, 1975; Smith, 1976.) However, all of this liberature neglects the public choice theory and empirical evidence which, in extremis, denies the existence of a well-behaved social objective function. Unfortunately, the major public choice work on this subject by Niskanen (1971: 45) assumes that a bureau is a 'competitive purchaser of factors.' The conclusions of this assumption appear to contradict the facts of relative government pay as adduced by Smith (1976; 1977), Lentz (1976a) and Perloff (1974). Similarly, the works of political scientists on public sector employment in the non-unionized context, Sorauf (1956), Tucker (1969) and Grump (1971), focus upon the political participation outcomes of public employment without any rigorous treatment of the economic incentives used to induce these outcomes. In this article, I simply wish to argue that we need a model of public sector wage determination which (1) predicts the wage outcomes in the absence of unionization, (2) takes explicit account of the fact public employment labour demands are the outcome of a democratic political process, and (3) accounts for the major non-wage terms and conditions of public employment. Reder (1975) has advanced this sort of model as have I in Lentz (1976a). In this paper I will merely summarize my earlier work and test the model put forward using data for county government employees. In the analysis proposed here and in Lentz (1976a), the fundamental assumption is that public employers seek to maximize their long-run expected, i.e. loyal, voter support rather than the output of traditionally-defined

A Microeconometric Analysis of Spillovers within the Canadian Wage Determination Process

T HE objective of this paper is to develop and test models of wage spillovers utilizing a large micro data base constructed from Canadian collective bargaining wage contracts signed between 1966 and October 1975 (the introduction of wage controls in Canada). There are two basic approaches to the wage spillover hypothesis that can be found in the literature. 1 Institutional spillover models, characterized by Dunlop's wage contours and Ross' orbits of coercive comparisons, emphasize the distributional structure of wage rates between occupational-industrial groups. A second approach follows the tradition of microeconomic labour market theory and emphasizes relative wages, labour mobility, labour turnover costs, etc. For example, a simple Marshallian model would include both the firm's own wage rate as well as competing wage rates as determinants of labour supply (and consequently wage changes). More recently Phelps (1968) has proposed a generalized excess demand model of frictional labour markets in which a profit-maximizing firm establishes an optimal wage differential between its own wage rate and competing wage rates.2 Unfortunately it may be impossible to identify empirically the precise origin of wage spillover effects. The existence of wage spillovers is totally consistent with economic models of wage determination as well as being consistent with institutional hypotheses that emphasize bargains, wage leadership, pattern wage adjustments, maintenance of historical wage differentials, etc.3 Thus, our interpretation of the theoretical rationale for wage spillovers must, of necessity, be somewhat agnostic. Turning to the empirical evidence, three studies have advanced evidence pertaining to wage spillovers, each study based on a very different statistical methodology. Perhaps the classic study in this area is the Eckstein-Wilson (1962) paper which emphasizes a number of institutional aspects of the wage determination process. Eckstein and Wilson provide empirical evidence, based on the of specific wage rounds, supporting a combined market-institutional spillover model of wage determination within the U.S. manufacturing sector. For a key of industries, identified largely from impressionistic evidence, wage changes are determined by profit and unemployment rates based on the aggregate rates for all industries within the group. Outside the group of industries, wages are principally determined by wage spillovers from the group. Unfortunately, the underlying wage round technique employed by Eckstein and Wilson is notoriously difficult to implement, i.e., to identify unambiguous aggregate wage rounds. McGuire and Rapping (1967) have challenged the Eckstein-Wilson study on the grounds that at best their evidence lends weak support to their institutional hypothesis, that their central result for the group of industries is ambiguous, and finally that they have not resolved the problem of distinguishing between neo-classical labour supply forces and institutional spillover effects. McGuire and Rapping's own model (1968), which is tested with cross-sectional data (industries at the state level), reveals that while market forces play an important role in the relative wage determination process for the U.S. manufacturing sector, wage spillovers from steel and automobile bargains (particularly steel) are also relevant explanatory variables. Received for publication July 13, 1978. Revision accepted for publication May 23, 1979. * University of Guelph. We gratefully acknowledge the helpful comments that we have received from Doug Auld, David Dodge, Mark Mueller, and John Vanderkamp. This paper could not have been written without the financial support of the Anti-Inflation Board and the diligence of an exceptionally fine research assistant, Jane Forster. None of the above-named individuals, nor the Anti-Inflation Board, should be held responsible for the arguments and conclusions of this paper. 1 For a thorough review and critique of spillover theories, see Burton and Addison (1977). 2 This optimal wage differential takes into account the turnover costs associated with recruiting, hiring, and training new workers. 3 For further discussion of this identification problem, see Addison and Burton (1979). [ 213 ]

Divide and Conquer: Microfoundations of a Marxian Theory of Wage Discrimination

Microfoundations for a divide-and-conquer model of wage discrimination are provided by positing that workers' psychologies permit racial integration of firms to weaken workers' unity and hence reduce their bargaining power against employers. In this bargaining -- as opposed to competitive -- model of wage determination, there are discriminatory equilibria at which both white and black workers are worse off and employers are better off than would be the case without worker dissension. Furthermore, owing to the bargaining structure, market forces cannot unravel the discriminatory wage bargain.

Wage Differentials among Older Workers in the Public and Private Sectors

Wages in the public sector are often set on the basis of comparisons with compensation in the private sector. There are reasons to suspect that this approach may result in government pay schedules that exceed those in the private sector. In this paper, with a human capital model of wage determination and a sample of older male workers, we compare wages in federal, state, and local public administration with those in the private sector, after adjusting for differences in personal and geographic characteristics. We find that the wage gaps that do exist cannot be completely explained by human capital and locational variables. Fringe benefits, job stability, and the attractiveness of the job environment also appear to be greater in the public sector.