Nominal Wage Research Articles

Economic geography and inequality in China: Did improved market access widen spatial wage differences?

New economic geography (NEG) models predict that costly transport and the spatial distribution of demand affect the profits firms can earn in different locations, leading to higher wages for workers employed in cities with better geographic access to markets. In light of the ongoing economic integration and market reforms that occurred in China after 1995, we use three waves of Chinese Household Income Project (CHIP) data to measure the extent to which the influence of market access on wages changed and affected wage dispersion across Chinese cities over the next 12 years. Employing the gravity-based method of Redding and Venables (2004) to calculate the market access available to firms located in each city, we test whether the elasticity of the wage with respect to local market access increased over time. We find that in all three years market access of the worker's location has a positive and significant influence on the wage. Consistent with extensive labor market reforms of the late 1990s, the estimated wage elasticity doubles between 1995 and 2002 and is stable thereafter. Our estimates indicate that wages of all workers become more responsive to market forces in a manner consistent with NEG predictions, both skilled and unskilled and those working for state as well as private enterprises. We also provide evidence that these results are not driven by omission of other forms of agglomeration or by selection bias. Estimated spatial differences in nominal wages are large: a worker moving from an inland location to the coast in 2007 would have doubled his or her nominal wage. Counterfactual analysis indicates that spatial differences in market access contribute to wage inequality, but less so over time.

How Prevalent is Downward Rigidity in Nominal Wages? International Evidence from Payroll Records and Pay Slips

For more than 80 years, many macroeconomic analyses have been premised on the assumption that workers’ nominal wage rates cannot be cut. Contrary evidence from household surveys reasonably has been discounted on the ground that the measurement of frequent wage cuts might be an artifact of reporting error. This article summarizes a more recent wave of studies based on more accurate wage data from payroll records and pay slips. By and large, these studies indicate that, except in extreme circumstances (when nominal wage cuts are either legally prohibited or rendered beside the point by very high inflation), nominal wage cuts from one year to the next appear quite common, typically affecting 15-25 percent of job stayers in periods of low inflation. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

How Prevalent is Downward Rigidity in Nominal Wages? Evidence from Payroll Records in Washington State

For more than 80 years, many macroeconomic analyses have been premised on the assumption that workers’ nominal wage rates cannot be cut. The U.S. evidence on this assumption has been inconclusive because of distortions from reporting error in household surveys. Following a British literature, we reconsider the issue with more accurate wage data from the payroll records of most employers in the State of Washington over the period 2005-2015. For every one of the 40 four-quarters-apart periods for which we observe year-to-year wage changes, we find that at least 20 percent of job stayers experience nominal wage reductions.

Effects of Migration in a Basic Labour Market Model

This paper tackles the textbook message that free migration of labour equalizes real wages between local labour markets, since nominal wages should rise and prices should fall in emigrating localities and vice versa in immigrating localities. Reverse price adjustments should thus help in stabilizing migration. The paper investigates the idea in a basic labour market model with sequential comparative statics, and gets conflicting findings: both decreasing prices in the emigrating end and increasing prices in the immigrating end foster emigration. Furthermore, common wisdom is that, if emigration forces the locality to elevate tax rates, people’s voting with feet should foster emigration. This paper shows that this is true only with notable tax increases. In the other end, induced emigration appears if the initially immigrating locality is forced to increase its taxes, even modestly.

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Implementable, Optimal Macroprudential and Monetary Policies: Implications for House Prices and Household Debt

This paper addresses implementable, optimal macroprudential and monetary policies in a standard DSGE model augmented with nominal price and wage rigidities and housing sector. The paper also discusses the effect of introducing of time-varying LTV regulation in cooling down large swings of household debt. In particular, it examines macroprudential policy reacting to credit growth or housing price growth to dampen the excessive volatility of household debt. The paper shows that the time-varying macroprudential policy rules reacting to the debt to income ratio or to the credit growth are more effective in moderating the household debt swings to exogenous shocks than the time-varying macroprudential policy rule responding to the housing price growth. In particular, the time-varying macroprudential policy reacting to debt to borrower's labor income is most effective in moderating the debt fluctuations to housing demand shocks. The macroprudential policy reacting to the housing price growth is almost indifferent to the time-invariant macroprudential policy when the economy is hit by the house demand shock. The time-varying macroprudential policy is against the winds in the sense that the LTV ratio goes down when the economy expands with an increase in housing price and demand. The paper shows that there is a substantial welfare increase associated with the time-varying macroprudential policy compared to the time-invariant macroprudential policies.

Budget Tax Revenues and Losses from External Labor Migration in Russia

One of the reasons behind declining budget revenues can be external migration. This article aims to describe the methodology for estimation of tax losses and revenues from international labor migration for specific types of taxes. Changes in personal income tax revenues are estimated by using the data on the number of labor emigrants (immigrants) for specific occupations, nominal gross monthly wage of employees in this occupation in Russia, standard child tax deductions and the corresponding personal income tax rate for residents (non-residents). Changes in VAT and excise tax revenues caused by the current trends in labor migration are estimated in accordance with the structure of household consumption. The amount of tax revenues (and losses) is calculated as the product of the sum of VAT and excise tax payments made by one member of a household per year when buying goods, works and services on the territory of Russia, and the number of emigrants (or immigrants). The research uses the data provided by Rosstat, Federal Tax Service of Russia and the Analytical Centre under the Government of the Russian Federation for 2012–2017. The conclusion is made that international migration has a negative impact on the tax revenues of the country’s consolidated state budget. Although, throughout the whole of the given period, the balance of additional revenues from VAT, excise taxes and the personal income tax (PIT) on earned income and budget losses from these taxes remained positive, in absolute terms, this balance decreased significantly. Trends in international labor migration affected the balance of tax losses and revenues. Therefore, the government’s attempts to target international labor migration by reforming the tax legislation seem quite reasonable: the upcoming tax reforms will include the introduction of the concept ‘centre of vital interests’ as the second criterion of residence and equalization of the PIT rate for tax residents and non-residents. The proposed methodology can thus prove to be an effective tool for the Federal Tax Service of Russia to estimate the resulting changes in tax revenues as well as other changes related to labor migration processes.

Firm Turnover in the Export Market and the Case for Fixed Exchange Rate Regime

This paper revisits the case for exible vs. fixed exchange rate regime in a two-country model with firm heterogeneity and nominal wage rigidity under incomplete financial markets. Dampening nominal exchange rate fluctuations simultaneously stabilizes the firm turnover in the export market. When firms are homogeneous and low productive, the fixed exchange rate regime dominates the flexible one because it reduces the fluctuations in labor demand arising from entry and exit of exporters following a demand shock. We also show that an alternative regulation policy in the export market does not rule out the possible adoption of a managed floating regime.

The Negative Mean Output Gap

We argue that in an economy with downward nominal wage rigidity, the output gap is negative on average. Because it is more difficult to cut wages than to increase them, firms reduce employment more during downturns than they increase employment during expansions. This is demonstrated in a simple New Keynesian model with asymmetric wage adjustment costs. Using the model's output gap as a benchmark, we further show that common output gap estimation methods exhibit a systematic bias because they assume a zero mean. The bias is especially large in deep recessions when potential output tends to be most severely underestimated.

Technology Gaps, Trade and Income

This paper studies the origins and consequences of international technology gaps. I develop an endogenous growth model where R&D efficiency varies across countries and productivity differences emerge from firm-level technology investments. The theory characterizes how innovation and learning determine technology gaps, trade and global income inequality. Countries with higher R&D efficiency are richer and have comparative advantage in more innovation-dependent industries where the advantage of backwardness is lower and knowledge spillovers are more localized. I estimate R&D efficiency by country and innovation-dependence by industry from R&D and bilateral trade data. Calibrating the model implies technology gaps, due to cross-country differences in R&D efficiency, account for around one-quarter to one-third of nominal wage variation within the OECD.

Rigid Wages and Contracts: Time- Versus State-Dependent Wages in the Netherlands

We study nominal wage rigidity in the Netherlands using administrative data, which has three key features: (1) high-frequency (monthly), (2) high-quality (administrative records), and (3) high coverage (the universe of workers and the universe of firms). We find wage rigidity patterns in the data that are similar to wage behavior documented for other European countries. In particular we find that the hazard function has two spikes, one at 12 months and another one at 24 months and wage changes have time and state dependency components. As a novel and important piece of evidence we also uncover substantial heterogeneity in the frequency of wage changes due to explicit terms of the labor contract. In particular, contracts featuring flexible hours, such as on-call contracts, exhibit a higher probability of a change in the contract wage compared to fixed hour contracts. Once we split the sample based on contract characteristics, we also find that the response of wage changes to the time and state component is heterogeneous across different type of contracts - with relatively more downward adjustments in flexible-hour contract wages in response to aggregate unemployment.

The Worst of Both Worlds: Fiscal Policy and Fixed Exchange Rates

Under fixed exchange rates, fiscal policy is an effective tool. According to classical views because it impacts the real exchange rate, according to Keynesian views because it impacts output. Both views have merit because the effects of government spending are asymmetric. A spending cut lowers output but does not alter the real exchange rate. A spending increase appreciates the exchange rate but does not alter output unless there is economic slack. We establish these results in a small open economy model with downward nominal wage rigidity and provide empirical evidence on the basis of quarterly time-series data for 38 countries.

European Wage Dynamics and Spillovers

Wage rises have remained stubbornly low in advanced Europe in recent years, but, at the same time, newer EU members are experiencing rapid wage acceleration. This paper investigates the drivers of this wage divergence. Econometric analysis using error correction models suggests that wage growth responds more quickly to changes in unemployment in the newer EU members than in advanced Europe, where wages are more closely related to inflation and inflation expectations in the short run, implying greater inertia in nominal wage rises in advanced Europe. In the years after the global crisis, this inertia contributed to the build up of a real wage overhang relative to sharply slowing labor productivity, which subsequently dragged on nominal wage rises even as unemployment began to decline. Spillovers of subdued wage growth between euro area countries also weighed on wage rises in advanced Europe.

WAGE CONVERGENCE ON THE COUNTY-LEVEL IN POLAND: A PANEL DATA APPROACH

This study investigates nominal wage convergence on the county level in Poland from 2005 till 2017, while accounting for the structural heterogenity of the units and common time shocks. Results reveal that wage levels converge to their own steady-state with the speed of 7.6% of the imbalance per year. When time fixed effects are accounted for, this speed becomes higher and has a value of 34.5%. Common time effects, such as economic cycle considerably contribute to the convergence speed. The exclusion of time effects tends to bias downward the estimated convergence rate. With regard to σ-convergence, wage inequalities across the counties decreased over the years 2005–2010 with their levels moving toward the national average. However, as of 2010 this process, if any, is very slow.

Tourism as an Instrument of Economic Development of the Banská Bystrica Self-Governing Region

The paper focuses on the evaluation of regional tourism in terms of its economic development potential. Based on selected economic indicators (e.g. registered unemployment rate, capacity and performances of accommodation facilities, average number of employees and average nominal wage), we analyse the position of the territory in the regional structure of Slovakia and describe factors that determine the development of the region (location, absence of large cities, poor transport infrastructure). Via valorising the natural and anthropogenic assumptions we evaluate the potential of the territory in the context of the possibilities of tourism development in it. Valorisation was carried out in relation to the main recreational activities, where the aggregate value of the potential expresses precisely the possibilities of developing recreational activities in the studied area. The most developed are the districts of Banská Bystrica and Brezno, forming the Horehronský tourism region. The less developed region with untapped tourism potential is Pohronský region, represented by the districts of Zvolen, Žiar nad Hronom, Žarnovica, Banská Štiavnica and Detva. The Gemerský region (the Rimavská Sobota and Revúca districts) shows the greatest difference between the potential of the territory and the current state of the level of tourism development. The least developed area with the lowest tourism potential is the Ipeľský region (districts Krupina, Veľký Krtíš, Poltár and Lučenec). Based on selected statistical indicators related to tourism (Baretje and Defert index, Schneider index, Charvat index) we evaluate the current state of development of tourism in the studied area. These approaches are complemented by a historical-geographic analysis of the development of the territory, which completes the image of the limits of development of the Banská Bystrica self-governing region.

Is ECB Monetary Policy More Powerful During Expansions?

This paper tests whether the effects of ECB monetary policy vary over different phases of the business cycle. It uses local projections to estimate the state-dependent impulse responses of economic activity and prices to monetary policy shocks. These are identified through high-frequency financial market responses after Governing Council meetings. While the impact of monetary policy on economic activity is roughly similar during recessions and expansions, prices respond more strongly during booms. The result holds when the state of the economy is based on measures of resource utilization, rather than on GDP growth rates. Nominal wages also respond more strongly to monetary policy during expansions and when there is no slack in the economy. The empirical findings are consistent with the presence of downward rigidity on nominal wages.

Exploring regional wage dispersion in Swedish manufacturing, 1860–2009

ABSTRACTEconomic theory predicts that regional wages will converge as transport and communication technologies bring labour markets together. An exploration of this transition from labour market segmentation to unification requires long-term evidence of nominal wages and cost of living by region. This paper presents new evidence of wages for male manufacturing workers and cost-of-living indices across 24 Swedish counties between 1860 and 2009. Our findings indicate that the Swedish regional wage differentials were a great deal larger in the 1860s than in the 2000s. Most of the compression took place between the 1860s and World War I, as well as in the 1930s and during World War II. Differences in expenditures on housing impact on our assessment of convergence in the post-World War II decades: the nominal measure declines, while the real one stays constant. Our concluding discussion engages with the assumption that before World War I, regional wage convergence was associated with labour mobility, spurred by improved communication and transportation technologies as well as by the implementation of modern employment contracts. In the 1930s and 1940s, in contrast, regional wage convergence can be traced to high unionisation and centralised collective bargaining in the labour market, two distinguishing features of the Swedish Model.

Aggregate effects of minimum wage regulation at the zero lower bound

The Fair Minimum Wage Act of 2007 increased the U.S. nominal minimum wage by 41%, just as interest rates hit the zero lower bound. I study the interaction of these events in a parsimonious extension of the sticky-price New Keynesian model with heterogeneous labor. A “minimum-wage augmented” Phillips Curve relates inflation to output and the real minimum wage, which I estimate with aggregate data. Consistent with theory, controlling for the real minimum wage reduces the effect of output on inflation and increasing the minimum wage is inflationary. I then calibrate the equilibrium model to match microeconomic elasticities of earnings with respect to the minimum wage. On aggregate, the ZLB’s contractionary effects are dampened because nominal wages cannot decline rapidly, thereby halting the deflationary spiral caused by low aggregate demand. The effect can be large - in the calibrated economy, GDP losses from the ZLB are cut by half, even though only 3% of earnings accrue to minimum wage earners. Furthermore, increasing the minimum wage at the ZLB is expansionary, generating expected accumulated output gains of 14%.

Problems of the Debt Load of the Population of Russia and the Altay Kray

The Object of the Study. Organizational and economic relations arising between commercial banks and individuals in the process of crediting.The Subject of the Study. Crediting the population of Russia.The Purpose of the Study. Studying the problem of crediting the population of Russia and the inhabitants of the Altay Kray.The Main Provisions of the Article. The authors have analyzed the credit indebtedness of individuals both in Russia as a whole and in the Siberian Federal Okrug, the volume and share of overdue debt of citizens in particular. Particular attention in the study has been paid to the level of credit burden of the population of Russia and the Altay Kray, the reasons for the crediting of the population of the Altay Territory were investigated. The article gives an assessment of the consequences of population crediting, analyzing the changes in per capita cash income of the population, the average monthly nominal wage of citizens of the Altay Okrug is given. To solve the problems associated with crediting the population, measures such as increasing the financial literacy of the population and improving the living standards of the citizens has been proposed.

Real Wages in Germany during the First Phase of Industrialization, 1850-1889

Abstract The study constructs new wage series at the branch level and aggregates them to an index of nominal wages in industry and urban trades in 18481889. Moreover, the study develops new food price and rent indices. These are then combined with price indices for other categories of household expenditure from Hoffmann (1965) into a consumer price index for 1850-1889. The new real wage index shows little growth for the third quarter of the nineteenth century; the first phase of rapid industrialization from the 1840s to the early 1870s had only a small positive impact on the living standard of the industrial and urban lower classes. Only from the 1880s, when Germany moved into a second phase of industrialization, did the real wage experience a sustained and rapid increase. Nevertheless, the diversification of employment opportunities taking place in the wake of industrialization and the European grain invasion were accompanied by a marked reduction of income volatility among lower-class households already from the 1870s.