Nominal Wage Research Articles

Secular Labor Reallocation and Business Cycles

We revisit an old question: does industry labor reallocation affect the business cycle? Our empirical methodology exploits variation in a local area's exposure to industry reallocation based on the area's initial industry composition and national industry employment trends for identification. Applied to confidential employment data over 1980-2014, we find sharp evidence of reallocation contributing to higher local area unemployment if it occurs during a national recession, but little difference in outcomes during an expansion. A multi-area, multi-sector search and matching model with imperfect mobility across industries and downward nominal wage rigidity can reproduce these cross-sectional patterns. The same model implies that labor reallocation substantially amplifies the increase in aggregate unemployment during recessions, but has little impact on aggregate employment in expansions.

Low Inflation Bends the Phillips Curve Around the World

This paper models inflation by combining the multi-country framework of one of its authors (Forbes) with the nonlinear specification proposed by the other two (Gagnon and Collins). The results find strong support for a Phillips curve that becomes nonlinear when inflation is low, in which case excess economic slack has little effect on inflation. This finding is consistent with evidence of downward nominal wage and price rigidity. The estimates also show a significant and economically meaningful Phillips curve relationship between slack and inflation when slack is negative (i.e., when output is above long-run potential). In this nonlinear model, international factors play a large role in explaining headline inflation, a role that has increased over time, supporting the results of Forbes’ linear model.

Embedded Technology and Economic Growth

It is shown in the present paper that embedded technology leads to higher economic growth. In other words, if the share of labor cost in value added is decreased then economic growth increases. It should be noted however that a decline in the share of labor cost in value added does not necessarily imply that the nominal wage is decreased, but instead it means that higher portion of technology is embedded in the value added. Statistics have shown that an increase in nominal labor costs is not the reason for a slow economic recovery, but the share of labor costs in the value added, which is the crux of the present article.

ДИНАМИКА ПОКАЗАТЕЛЕЙ ДИФФЕРЕНЦИАЦИИ ЗАРАБОТНОЙ ПЛАТЫ В ЭКОНОМИЧЕСКОМ ПРОСТРАНСТВЕ РОССИИ В УСЛОВИЯХ МАКРОЭКОНОМИЧЕСКОЙ НЕСТАБИЛЬНОСТИ (Wages Differentiation Indicators Dynamics in the Russian Economic Space for the Macroeconomic Instability Conditions)

Russian abstract: Актуальность темы обусловлена важным значением мониторинга индикаторов региональных рынков труда для обеспечения необходимых условий сбалансированного социально-экономического развития страны. Сильная межрегиональная дифференциация заработной платы, наряду с также очень значительной ее дифференциацией по видам экономической деятельности является важнейшим фактором перемещения экономически активного населения между регионами страны в условиях недостаточности трудовых ресурсов на макроуровне. В статье отражены результаты оценки степени межрегиональной дифференциации значений среднемесячной номинальной начисленной заработной платы работников организаций в регионах России. Оценка произведена с помощью коэффициента размаха, децильного коэффициента дифференциации и коэффициента вариации. Выявлена устойчивая тенденция снижения значений коэффициента размаха и децильного коэффициента дифференциации в период 2000-2018 гг., что отнесено к позитивным процессам на региональных рынках труда. Сделан вывод об уменьшении неравенства российских регионов по уровню средней номинальной заработной платы. Установлено, что совокупность регионов страны стала более однородной за исследуемый временной интервал по заданному признаку. Проведено сопоставление динамике значений коэффициентов с общеэкономической динамикой. Выдвинута гипотеза взаимосвязи динамики валового регионального продукта и изменения однородности массива регионов по уровню среднемесячной номинальной начисленной заработной платы работников организаций, которая предложена в качестве исходного положения для дальнейших исследований. Для повышения эффективности мониторинга реализации Стратегии пространственного развития предложено учитывать динамику значений децильного коэффициента дифференциации, коэффициента вариации, а также коэффициента размаха (разброса) российских регионов, городских агломераций, макрорегионов и федеральных округов по уровню среднемесячной номинальной начисленной заработной платы работников организаций. English abstract: The relevance of the topic is due to the importance of monitoring indicators of regional labor markets to ensure the necessary conditions for a balanced socio-economic development of the country. Strong interregional differentiation of wages, along with its very significant differentiation by type of economic activity, is the most important factor in the movement of economically active population between regions of the country in conditions of insufficient labor resources at the macro level. The article reflects the results of assessing the degree of interregional differentiation for the average monthly nominal accrued wages of employees of organizations in the regions of Russia. The assessment was made using the amplitude coefficient, decile coefficient of differentiation and coefficient of variation. A steady tendency towards a decrease in the magnitude of the coefficient of magnitude and decile coefficient of differentiation in the period 2000-2018 is revealed, which is attributed to positive processes in regional labor markets. It is concluded that the inequality of the Russian regions is reduced in terms of the average nominal wage. It has been established that the totality of the country's regions has become more homogeneous over the studied time interval for a given attribute. The coefficient values dynamics is compared with the general economic dynamics. A hypothesis has been put forward on the relationship between the dynamics of the gross regional product and changes in the homogeneity of the array of regions in terms of the average monthly nominal accrued wages of employees of organizations, which is proposed as a starting point for further research. To increase the effectiveness of monitoring the implementation of the Spatial Development Strategy, it is proposed to take into account the dynamics of the values of the decile coefficient of differentiation, the coefficient of variation, as well as the span (spread) coefficient of the Russian regions, city agglomerations, macro-regions and federal districts according to the average monthly nominal salary of employees of organizations.

Downward Nominal Wage Rigidity in the United States During and After the Great Recession

Rigidity in wages has long been thought to impede the functioning of labor markets. In this paper, we investigate the extent of downward nominal wage rigidity in US labor markets using job-level data from a nationally representative establishment-based compensation survey collected by the Bureau of Labor Statistics. We use several distinct methods to test for downward nominal wage rigidity and to assess whether such rigidity is less or more severe in the presence of negative economic shocks than in more normal economic times. We find a significant amount of downward nominal wage rigidity in the United States and no evidence that the high degree of labor market distress during the Great Recession reduced downward nominal wage rigidity. We further find a lower degree of nominal rigidity at multi-year horizons.

Supply and Demand in Disaggregated Keynesian Economies with an Application to the COVID-19 Crisis

We study supply and demand shocks in a general disaggregated model with multiple sectors, factors, and input-output linkages, as well as downward nominal wage rigidities and a zero lower bound constraint. We use the model to understand how the Covid-19 crisis, an omnibus of supply and demand shocks, affects output, unemployment, and inflation, and how it leads to the coexistence of tight and slack labor markets. Under some conditions, the details of the production network can be summarized by simple sufficient statistics. We use these sufficient statistics to conduct global comparative statics. Negative sectoral supply shocks and sectoral demand shocks are stagflationary, whereas negative intertemporal demand shocks are deflationary. Complementarities magnify Keynesian spillovers for the former shocks but mitigate them for the latter. We illustrate the intuition using a nonlinear AS-AD representation. In a quantitative model of the US calibrated to current disaggregated data, sectoral supply and demand shocks on their own generate more than 10% inflation, and negative intertemporal demand shocks on their own generate 7% deflation. Both types of shocks are necessary to capture the disaggregated data, each explains about half the reduction in real GDP, and putting both together results in 0.3% inflation and as much as 8.5% Keynesian unemployment in April 2020. Nevertheless, aggregate demand stimulus is only about a third as effective as in a typical recession where all labor markets are slack. More targeted forms of demand stimulus are more effective.

The U.S. Labor Market During the Beginning of the Pandemic Recession

Using weekly administrative payroll data from the largest U.S. payroll processing company, we measure the evolution of the U.S. labor market during the first four months of the global COVID-19 pandemic. After aggregate employment fell by 21 percent through late-April, employment rebounded somewhat through late-June. The re-opening of temporarily shuttered businesses contributed significantly to the employment rebound, particularly for smaller businesses. We show that worker recall has been an important component of recent employment gains for both re-opening and continuing businesses. Employment losses have been concentrated disproportionately among lower wage workers; as of late June employment for workers in the lowest wage quintile was still 20 percent lower relative to mid-February levels. As a result, average base wages increased between February and June, though this increase arose entirely through a composition effect. Finally, we document that businesses have cut nominal wages for almost 7 million workers while forgoing regularly scheduled wage increases for many others.

Lombard activities and social security of the country: interrelation and interdependence

The place and value of pawnshops in the financial market are considered in the article. The main indicators of activity of pawnshops are analyzed. The advantages and disadvantages of using the pawnshop services by the population are substantiated. The growth rate of pawnshop activity in Ukraine is determined on the basis of the method of estimating the integral indicator. The nature and specifics of the influence of social security indicators on the activity of pawnshops in Ukraine by means of correlation analysis are revealed. In the constructed econometric model, the factors that influence are the social security indicators of the country and the dependent values are indicators of pawnshop activity. The obtained results revealed a significant correlation between the social security indicators of the country and the indicators of pawnshop activity. The detail of the analysis showed the greatest correlation between the pawnshops' performance and the social security indicator – the ratio of the average monthly nominal wage to the subsistence level for one able-bodied person.

Manajemen Ekonomi Islam dalam Menangani Pandemi Coronavirus Disease (COVID-19) di Indonesia

This COVID-19 case can affect macroeconomic aspects in general. In this journal, aspects of previously published by McKibbin and Wilcoxen will be developed of Warwick McKibbin and Roshen Fernando. In this Journal will analyze sharia management on transactions using money by the Central Bank, nominal wages and financial policy. The journal uses qualitative research methods with natural research methods because the research is conducted in natural conditions. The findings of this study are First, transactions using the central bank. The concept of Islamic economics, transactions using official money issued by the government. money is used in transactions for activities that work and works as a precaution in an emergency conversation. Second, the nominal payment has been realized properly in accordance with the Islamic economy, it can be seen from the policies set by the government and related ministries. The third concerning economic policy has objectives related to Islamic economics. For further research, it is expected to conduct research on asset accounts and fund flows and the merging of two different models between households and companies so that aspects of McKibbin and Wilcoxen can be full analyzed.

State-level wage Phillips curves

Based on US state-level data for the period 1982-2016, two reduced-form versions of New Keynesian wage Phillips curves are examined. These are based on either sticky nominal wages or real-wage rigidity. The endogeneity of unemployment is taken into account by instrumentation and the use of common correlated effects (CCE) and mean group (MG) methods. This is the first time that this methodology has been applied in this context. These are important issues, as ignoring them may lead to substantial biases. The results show that while the aggregate data do not provide estimates that are consistent with either of the theoretical models examined, the panel methods do. Moreover, use of an appropriate MG CCE estimator leads to economically significant changes in parameters (primarily a steeper Phillips curve) relative to those from inappropriate but widely used panel methods. In the real-wage rigidity case, this is required to deliver results that have a theoretically admissible interpretation.

Monopsony with nominal rigidities: An inverted Phillips Curve

With nominal wage rigidities, it is crucial to distinguish whether wages are set by workers or firms — whether we have monopoly or monopsony power. This paper provides a model of monopsony power in the labour market and a monopsonistic Phillips Curve. If wages are set by firms who face nominal rigidities, and there is inflation, firms cannot adjust their wages fully. The real wage falls, and labour supply hence output decreases. This provides a Phillips Curve where the output gap is negatively correlated with wage inflation. In such a world monetary policy affects the intertemporal labour supply, while the Phillips Curve is a labour demand curve. Interest rate cuts reduce the labour supply instead of boosting demand: they are contractionary.

Labour and the ‘law of one price’: regional wage convergence of farm workers in Sweden, 1757–1980

ABSTRACT Economic theory predicts that differences in wages for workers with similar skills will decline as labour mobility increase. This prediction is reminiscent of the ‘law of one price’, the notion that markets, if unfettered, eliminates price differentials of similar commodities across space. But can we really apply the economic logic of the commodity market to the labour market, governed as it is by institutions and politics as well as market forces? In this paper, we have examined the spread in farm workers’ wages across Swedish counties in 1757–1980. Besides nominal wages, the paper also offers cost of living indices by county. The paper enquires into sigma convergence and beta convergence. Long-run convergence, by both measures, was massive; the coefficient of variation, for instance, declined from about 28 per cent in the mid-eighteenth century to 4 per cent in 1980. Most of the compression, though, occurred in brief episodes rather than continuously. Markets, through labour mobility and trade, and institutions, through collective actions and labour laws, took turns in pushing towards regional convergence. The ‘law of one price’, we conclude, was not singlehandedly responsible for the elimination of regional wage differentials.

Modelling the Development Dynamics of Small and Medium-Sized Enterprises in Russia

The paper explores the factors in the development of small and medium-sized entrepreneurship (SME) in Russia over the past 13 years. The purpose of the article is to identify the patterns and current trends in the dynamics of the number of SMEs. The present study carries out correlation and regression analysis of the factors using the statistical data for 2006–2018. The number of the employed and the average nominal wage are the factors that exert a positive effect on the number of small enterprises, whereas tax burden, the weighted average rate for short-term loans and the inflation rate have a negative impact. The research results allowed forecasting the development dynamics of SMEs for 2020–2024. Providing that Russia follows the basic scenario of the socio-economic development and the existing trends persist, the total number of SMEs is expected to grow to 3,636 thousand (1.37 times) by 2024.

Analyzing the level of wages in the Astrakhan Oblast

Subject. The article considers theoretical aspects of nominal, accrued, real, and disposable wages and savings in the Astrakhan Oblast in various areas of economic activity. Objectives. The study aims to review movements in wages and their level, develop methods for assessing wages, calculate and analyze real wages and savings in the Astrakhan Oblast. Methods. The study draws on the analysis of data on the number of employees and their wages and salaries in the Astrakhan Oblast, which are provided by the Office for National Statistics, and the calculation of indicators based on these data. Results. We analyzed trends in wage increase and the number of employed population in the Astrakhan Oblast. The paper systematizes theoretical aspects of wage assessment, presents calculated indicators of real wages and savings of the employed population. The indicators of savings are divided into groups reflecting the level of household wealth. We provide diagrams illustrating the demand for labor in the Astrakhan Oblast. The findings may be useful for the analysis of living standard in the said area, its socio-economic level. They are also helpful for formulating directions for the region's development. Conclusions. Despite the growth of nominal wages in most spheres of economic activity, more than half of the population of the Astrakhan Oblast do not have incomes to satisfy all their social and spiritual needs, since a large portion of income goes to the minimum needs of subsistence, payment for utilities, cellular communication services and internet, and transport.

A deep recession came with deep wage cuts

While economists historically have considered wages rigid downwards, recent studies have shown that cuts in nominal wages are more common than previously thought. The deep recession experienced in Iceland in 2008, coupled with Iceland’s flexible labor market provided an extreme example of a labor market that experienced widespread and deep cuts in nominal wages. Data covering two-fifths of the labor market showed that 80% of employees experienced a nominal cut in regular hourly wages between 2008 and 2010. The data was collected directly from organizations, and excluded the effects of a change in hours worked. Nominal hourly wages for full time work were cut by 9.3% on average, at the same time inflation measured 18%.

Sticky Swedes and flexible Finns: manufacturing labour markets in Finland and Sweden during the Great Depression

ABSTRACTNominal wage stickiness is a popular explanation for the greatness of the Great Depression. According to the sticky-wage explanation, the slow adjustment of nominal wages raised real wages above the market-clearing level, causing a reduction of output and labour, thus increasing unemployment. Explanations for nominal wage stickiness are usually sought within the labour-market institutions and their changes after the First World War. This paper examines the role of labour-market institutions by comparing manufacturing labour markets in Finland and Sweden. These two countries had quite similar economic structures, trade patterns, and exchange rate policies, but different systems of industrial relations. Results indicate that stronger trade unions and collective bargaining made nominal wages stickier in Sweden, while in Finland, where collective agreements did not exist, unions were weaker, and wage adjustment was more flexible. As a result, real product wages rose in Sweden but fell in Finland. This created in Sweden stronger pressure for reducing labour input than in Finland. Our results show on one hand that labour market institutions clearly influenced the course of the Great Depression, but on the other hand that they alone do not explain the different economic outcomes during the depression and the recovery.

Business cycle asymmetry: evidence from Japan’s decade-long deflation

ABSTRACT This paper empirically examines the asymmetric behaviour of macroeconomic time series under different economic regimes, focusing especially on whether the economy is in a deflationary or non-deflationary regime, using a threshold vector autoregression model (TVAR). The results provide evidence in favour of asymmetric spillover effects from demand shocks on economic variables such as wages and consumption. In contrast to the non-deflationary period, during the deflationary period demand shocks are not clearly transmitted to the economy overall due mainly to the rigidity of nominal wages. The findings highlight that the state of the economy also matters when we consider the nature of the business cycle.

Revisiting the relationship between unexpected inflation and output in the presence of indexation

Purpose This paper aims to investigate the relationship between output and unanticipated inflation when wages are indexed for the loss of purchasing power. The authors argue that the monetary authority remains useful when firms that face rigid demand index wages to compensate for the loss of purchasing power, unlike Fischer (1977), who suggested that monetary policy loses effectiveness when firms index wages. Design/methodology/approach This paper develops a simple theoretical model followed by an empirical investigation of the relationship between output and unanticipated inflation in the presence of indexation. The theoretical model assumes a perfectly competitive firm that produces a final good that has no close substitutes using one factor, labor. The demand for the product is rigid. The empirical work considers quarterly US data from 1982Q1 to 2017Q1 and uses the Generalized Method of Moments in which endogenous variables are instrumented using their own lags. This paper further considers the period before and after the recent global financial crisis. Findings This paper shows that unexpected inflation decreases the growth rate of output in the USA. The decrease is quantitatively and qualitatively stronger before the financial crisis than after the crisis. This finding suggests that the Federal Reserve should maintain higher expectations of inflation and then surprise the public with lower inflation rates. The results further suggest that regardless of how expectations are formed, firms and workers agree on the nominal wage that is equal to the realized marginal revenue product of labor. Originality/value This paper sheds light on the behavior of the central bank and its relative ineffectiveness in light of the recent economic recession.

Asymmetric wage adjustment and employment in European firms

Abstract We explore the impact of wage adjustment on employment with a focus on the role of downward nominal wage rigidities. We use a harmonised survey dataset, which covers 25 European countries in the period 2010–2013. These data are particularly useful for this paper given the firm-level information on the change in economic conditions and collective pay agreements. Our findings confirm the presence of wage rigidities in Europe: first, collective pay agreements reduce the probability of downward wage adjustment; second, wage responses to demand developments are asymmetric with a weaker downward response. Estimation results show that a wage reduction significantly lowers the probability of a decrease in employment at the firm level when demand falls and thereby point to a negative effect of downward wage rigidities on employment at the firm level.

Immigration and the pursuit of amenities

AbstractImmigrants to the United States live disproportionately in metropolitan areas where nominal wages are high, but real wages are low. This sorting behavior may be due to preferences toward certain quality‐of‐life amenities. Relative to U.S.‐born inter‐state migrants, immigrants accept lower real wages to locate in cities that are coastal, larger, and offer deeper immigrant networks. They sort toward cities that are hillier and also larger and networked. Immigrants come more from coastal, cloudy, and safer countries—conditional on income and distance. They choose cities that resemble their origin in terms of winter temperature, safety, and coastal proximity.