Real Wages Research Articles

Labor market effects of COVID-19 shocks

Abstract We study the impact of several Covid-19 related supply shocks. We use a standard wage setting-price setting model of the labor market and analyze the transmission of the shocks to the natural rate of unemployment and production. In a first step, the shocks are analyzed in a general way, graphically and algebraically. In a second step, numerical examples illustrate the effects on the real wage and the labor market equilibrium as well as output. Our theoretical results indicate that the negative supply shocks related to the Covid-19 pandemic are associated with a decline in the natural level of output and employment. Our results are supported by empirical evidence across various countries. However, limitations of the theoretical model can be considerable.

The Health Wedge and Labor Market Inequality

ABSTRACT: Over half of the US population receives health insurance through an employer with premium contributions creating a flat "head tax" per worker, independent of their earnings. This paper develops and calibrates a stylized model of the labor market to explore how this uniquely American approach to financing health insurance contributes to labor market inequality. We consider a partial-equilibrium counterfactual in which employer-provided health insurance is instead financed by a statutory payroll tax on firms. We find that, under this counterfactual financing, in 2019 the college wage premium would have been 11 percent lower, noncollege annual earnings would have been $1,700 (3 percent) higher, and noncollege employment would have been nearly 500,000 higher. These calibrated labor market effects of switching from head tax to payroll tax financing are in the same ballpark as estimates of the impact of other leading drivers of labor market inequality, including changes in outsourcing, robot adoption, rising trade, unionization, and the real minimum wage. We also consider a separate partial-equilibrium counterfactual in which the current head tax financing is maintained, but 2019 US health care spending as a share of GDP is reduced to the Canadian share; here, we estimate that the 2019 college wage premium would have been 5 percent lower and noncollege annual earnings would have been 5 percent higher. These findings suggest that health care costs and the financing of health insurance warrant greater attention in both public policy and research on US labor market inequality.

On the Socio-Economic Effects of the Retirement Age Extension

The extension of retirement age is a hot issue of debate in South Korea. The unprecedentedly rapid aging due to the low fertility and longevity made the South Korea to show the highest level of old-age poverty among OECD countries. The rapid ageing brings the shortage of labor supply and the old-age poverty. The shortage of labor supply will eventually bring a slowdown of growth potentials of the economy. The alternative for the shortage of labor is the extension/delay of retirement. We analyze the impact of raising the retirement age on the employment, industry output, and economic growth. We used CGE model to analyze the retirement extension in South Korea. The overall effects can be summarized as follows: (1) the delay of retirement causes the increase in labor employed by –0.007% ~ 0.248%, and the real wage changes by –0.190 ~ –0.093. (2) Employment by industry varies according to the labor skills required in that sector. In general, the skill-intensive sector has higher employment growth. (3) The delayed retirement in the skill-biased sector cause real GDP to grow more (e.g., professional services, etc.).

The role amenities play in spatial sorting of migrants and their impact on welfare: Evidence from China.

From 2005 to 2015, China's high-skilled labor was increasingly concentrated in cities with high wages and high rents, while a narrowing of the wage gap between high- and low-skilled labor showed an opposite trend to an increase in geographic sorting. In this research, I estimated a spatial equilibrium structural model to identify the causes of this phenomenon and its impact on welfare. Changes in local labor demand essentially led to an increase in skill sorting, and changes in urban amenities further contributed to this trend. An agglomeration of high-skilled labor raised local productivity, increased wages for all workers, reduced the real wage gap, and widened the welfare gap between workers with different skills. In contrast to the welfare effects of changes in the wage gap driven by exogenous productivity changes, changes in urban wages, rents, and amenities increased welfare inequality between high- and low-skilled workers, but this is mainly because the utility of low-skilled workers from urban amenities is constrained by migration costs; if migration costs caused by China's household registration policy were eliminated, changes in urban wages, rents, and amenities would reduce welfare inequality between high- and low-skilled workers to a greater extent than a reduction in the real wage gap between these two groups.

Does Automatic Wage Indexation Destroy Jobs? A Machine Learning Approach.

This paper analyzes the impact of automatic wage indexation on employment. To boost competitiveness and increase employment, Belgium suspended its automatic wage indexation system in 2015. This resulted in a 2% fall in real wages for all workers. In the absence of a suitable control group, we use machine learning for the counterfactual analysis. We artificially construct the control group for a difference-in-difference analysis based on the pre-treatment evolution of treated firms. We find a positive impact on employment of 1.2%, which corresponds to a labor demand elasticity of - 0.6. This effect is more pronounced for manufacturing firms, where the elasticity reaches - 1. These results show that a suspension of the automatic wage indexation mechanism can be effective in preserving employment.

Poland: Policies dealing with the inflation crisis

The aim of the national case study is to investigate the recent inflationary developments in Poland, against the background of tendencies present in the EMU economies. It provides insights into the structural aspects of inflation in Poland, as well as into its outcomes for growth prospects and income distribution. For this purpose, the main tendencies in nominal wages and corporate mark-ups, as well as the up-to-date strategies of the government and domestic trade unions are analysed. The study combines quantitative analysis with qualitative overview of policy making and the activities of social partners, including the trade unions. First, we demonstrate that post-pandemic inflationary dynamics in Poland are similar to the CEE average, yet much higher than in the EMU. This can be attributed to the composition of the consumption basket, with a relatively high share of energy, food and transport expenses. There are also inflationary pressures from a strong expansion, as reflected in low unemployment, full capacity utilisation and exchange rate depreciation. Second, we identified strong redistributive effects of the inflation in Poland, as reflected in declining real wages and labour share in national income. We see extraordinarily high mark-ups and profits in the business sector, particularly in 2021. Finally, we identify the social dialogue in Poland as conflictual, with virtually no coordinated efforts to limit the rate of inflation. Under such conditions, government policies are of even higher importance. These focused primarily on mitigating the social costs of inflation for households, and mostly took form of economy-wide tax cuts and transfers.

Austria: Policies dealing with the inflation crisis

Inflation in Austria started to rise from mid-2021 during recovery from the Corona crisis. The Russian invasion in Ukraine and the heavy increases in energy prices made things worse and brought inflation to over 10%. The government did not enter into direct formal negotiations with social partners but subsequent anti-inflation packages met many demands made by the social partners. The attempt to influence wage negotiations via a tax exemption for one-off payments failed as they were not widely used in collective agreements. One-off payments are not suitable to compensate for permanent real wage losses. Current wage negotiations are tougher than usual, requiring long negotiation rounds including the thread of industrial action. The policy of unions to base their demand on past inflation allows for a substantial delay in nominal wage increases. The government has not yet included more direct measures to fight high inflation, like direct price controls, changes to the design of markets, or reforms of the automatic housing rent indexation. The wage setting system in Austria is still working but it will remain difficult to reach agreements, especially as a substantial part of the real wage losses has to be recovered over the coming years. A stronger use of regulatory measures and direct public involvement in the energy, housing and potentially the food price sector might be required if the current energy supply crisis and the transformation to a low carbon economy should be managed successfully in the future.

The Keynesian nexus between the market for goods and the labour market

In this paper, I build on the Keynesian analysis of the market for goods to draw some implications on the dynamic behaviour of some typical labour market indicators. Specifically, focusing on real magnitudes and distinguishing between the aggregate expected demand function and the aggregate expenditure function, I discuss the implied “daily” adjustments of expected and actual real wages that allow to achieve a short-run equilibrium. In addition, in order to show that the suggested picture of market for goods does not require a distinct setting to describe the transactions of labour services, I offer a rationale for equilibrium unemployment due to deficient demand grounded on the searching-and-matching theory.

Living standards of copper mine labour in Chile and the Central African Copperbelt compared, 1920s to 1960s

ABSTRACT Large-scale copper mining has been the main industry in Chile and the countries conforming the Central African Copperbelt for about one century. While a relatively extensive social science literature exists on the mostly adverse macroeconomic and institutional effects of a high reliance on mineral exports and revenues, we address the effects on the labour force employed by this industry. We perform a novel inter-continental – as well as dynamic-historical – comparative assessment of the living standards of the domestic copper mineworkers in the three countries from ca1920 to ca1960. There are important similarities and disparities in levels and trends of real wages and other welfare provisions. In explaining the gap across continents, we discuss labour shortage and labour provision, productivity, and mobilization. We also highlight the underlying role of colonialism in determining the inter-continental differences. Copper miners are further found to have been better paid than other workers in all three countries.

Do NBFCs propagate real shocks?

Notwithstanding a smaller share of total loans vis-à-vis commercial banks, we investigate a possible role of Non-banking financial companies (NBFCs) in propagating a real shock to the rest of the economy. Our two-sector model captures emerging economy characteristics such as NBFC borrowings from commercial banks, heterogeneities in financial constraints, and labour market friction faced by firms. Our theoretical and simulation results, using Indian parameters, indicate that an idiosyncratic shock (i.e., higher realization of the failed firms) and a sectoral productivity shock (in the sector financed by NBFCs) increase the interest rate charged by the banks, and the unemployment rate while reducing the real wages and per capita capital formation. However, the reverse happens given a structural shock, assumed as an increase in the average number of failed firms. Early detection of such shocks and quick policy intervention are required to provide a cushion for capital formation and job creation.

A Multi-Sector Post-Kaleckian Growth Model of Structural Change

ABSTRACT Relying upon the Pasinettian notion of vertical integration (Pasinetti, L. 1981. Structural Change, and Economic Growth: A Theoretical Essay on the Dynamics of the Wealth of Nations. Cambridge: Cambridge University Press), we develop a disaggregated version of the post-Kaleckian (Bhaduri, A. and S. Marglin. 1990. 'Unemployment and the Real Wage: The Economic Basis for Contesting Political Ideologies.' Cambridge Journal of Economics 14 (4): 375–393) approach to economic growth. With this analysis, the structural changes are conditioned not only to patterns of evolving demand but also to the distributive features of the economy. Considering oligopolist power and under-capacity utilization within the structural economic dynamic framework allows for heterogeneous final demand and mark-ups, with the profit margins of the consumption sector depending on the mark-up of the corresponding investment sector. Besides, in this set-up, it emerges the possibility vnthat each sector in the economy exhibits either a profit-led or a wage-led growth regime.

NURSING BABIES TO FIGHT POVERTY: WAGES OF WET NURSES OF SPANISH FOUNDLING HOSPITALS IN THE 18THAND 19THCENTURIES

ABSTRACTFoundling hospitals spread across Europe in the 18thand 19thcenturies, taking in hundreds of thousands of children each year. In Spain, the hospitals of major cities had staffs of more than 1,000 external wet nurses, who worked mainly in rural localities. Their cash wages were key for the household economies of the poor rural and urban populations. This article presents a methodology to interpret wet-nurse wages and explains their utility with respect to other occupations for men and women. Our results include a series of nominal and real wages for wet nurses and a calculation of their contributions to family income. The level of wages these institutions could offer was a major determinant in the supply of wet-nurse labour.

Modelling the impact of oil price changes and investment decisions on construction wages in the U.S.

The U.S. construction industry has been known to employ workers without a college education and provide adequate compensation make ends meet. Today, job quality in the industry has deteriorated to a level where wages are too low, causing workers to rely on U.S. safety net programs. This may be exacerbated by oil price changes, especially in regions where the oil industry is a significant driver of the economy. In this paper, we investigate the effects of oil price dynamics on real wages in the construction industry. A non-linear ARDL and TAR model are used for the empirical exercise which focusses on six top oil producing counties in the U.S. Long-run findings indicate that a 10% increase in oil price increases construction wages by 1.4, 1.2 and 9.3% in Kern, Weld and McKenzie Counties, respectively. Short run estimates indicate that a positive shock to oil prices increases wages in McKenzie County, North Dakota. Results from the TAR model show that the impact of an expansionary monetary policy to increase investment – and accordingly, increase wages – is diluted when oil prices are below the low oil price threshold.

Changes in the quality of bank loan portfolios in EU countries – with the particular case of Poland

As non-performing loans (NPLs) can cause monetary crises that may turn into financial crises affecting an entire economy, monitoring them is very important. If NPLs are not identified and recognized efficiently, both in terms of speed and scope, NPL resolution effectiveness is undermined, which in turn will have negative effects on the banking sector and ultimately on GDP growth.The main aim of this article is to identify changes in the quality of bank loan portfolios in European Union (EU) countries in 2009–2021, using an example of the Visegrad Group (Czech Republic, Poland, Slovakia, Hungary) as well as France and Germany. Keeping in mind the fact that the share of loans to households in EU portfolios is approximately 60%, it has a significant impact on the share of non-performing loans (NPL) in a bank’s entire portfolio. Therefore, it is important to identify macroeconomic determinants influencing the creditworthiness of households and their loan servicing capacity.The specific aims are, first, to present the differences in NPLs, debt servicing costs, and the structure of loan portfolios in the selected EU countries. Second, to identify countries with high-quality portfolios and those undertaking restructuring. Thirdly, to examine the determinants of NPL for household loans based on the example of Poland, i.e., a country considered representative in terms of the average level of NPL and the portfolio structure in the group of countries studied.This chapter presents the changes of NPLs, debt service ratio, and household loans in selected EU countries in 2009–2021. Moreover, an NPLs econometric model for Poland is constructed, which considers the main factors determining the creditworthiness of households, i.e., macroeconomic factors, financial standing, and debt servicing costs. Tools such as the VECM model, the variance decomposition and the impulse response functions are used. The results for Poland confirm that the NPLs ratio for households was the strongest explanation of previous changes in own NPL, consumption and real wages in the household sector in 2009–2021.

Modern İktisat Okulları Açışından Makroekonomik Dengeye Ulaşmada Beklentilerin Rolü

New Classicals have developed “Rational Expectations Hypothesis”. This means all economic agents are rational, optimizing and maximizing; they all have access to full information for the decisions they will take, and they will predict future prices correctly, hence make correct maximizing decisions.
 Friedman and Monetarists came up with “Adaptive Expectations Hypothesis” assuming that the workers, when there is an inflation will err in the first period and keep their wages the same; but in the next period they will realize the exact magnitude of the price rise and the fall in their real wage, hence will raise their wages correspondingly. Thus, the effects of monetary policy in reducing unemployment below natural rate of unemployment point will live only for one period; the economy will return to natural rate of unemployment and money supply increase will have only raised prices and wages; with the value of real parameters the same as one period ago.
 New Keynesians have also accepted Rational Expectations Hypothesis, which is obviously contrary to the Keynesian assumptions in this regard, namely, systematic under-estimation of future prices on the part of workers, as well as uncertainty and non-ergodicity.
 Post-Keynesians presented their assumptions in “Heterogeneous Expectations Hypothesis”. According to Post-Keynesians, entrepreneurs are in a better position than workers to obtain full information and estimate future prices correctly. The workers are less knowledgeable and generally end up under-estimating future prices.

Employment, Skill Upgrading, and International Trade: The Case of Sanctions Against Iran

This paper examines the effects of the trade sanctions imposed on Iran in 2010 on employment, demand for skilled labor, and wages by using industrial manufacturing data that cover 10 years before and 5 years after the sanction, 28 provinces, and more than 200 different industries. The results regarding the employment impact of the trade sanctions show that there was remarkable job destruction, most notably in domestically active industries, during the sanction period. The decomposition of the increase in the aggregate demand for skilled labor sheds light on the fact that it comes from labor reallocation within industries, not from across industries. The trade sanctions adversely affected both exporters' and non-exporters' total-factor productivity; however, non-exporters endured a larger negative impact. This induced biased technological change between exporters and non-exporters, which resulted in a market share reallocation towards exporters. As a result, the demand for skilled production workers increased which results in a rise in the real average wage, whereas the demand for non-production workers decreased which results in a fall in the real average wage during the sanction years. This opposite effect is explained by the elasticity of substitution between skilled and unskilled workers.

Global Value Chain Participation and the Labour Share: Industry‐level Evidence from Emerging Economies

ABSTRACTParticipation in global value chains (GVCs) has been proposed as a central means for emerging economies to develop and technologically upgrade. However, the effects of GVCs on income distribution in the global South remain underexplored. This article presents an econometric analysis of the determinants of the labour share in seven emerging economies for the period 1995–2014. Drawing on industry‐level data from global input‐output tables, the authors focus on how GVC participation — in particular offshoring of production from advanced to emerging economies — affects the labour share of different skill groups within manufacturing and service industries. They also estimate the effects of GVCs on productivity, real wages and the capital–value added ratio, to shed further light on the channels through which GVCs affect the labour share. In both industry groups, findings show that integration into GVCs with advanced economies has a negative effect on the labour share in emerging economies, particularly for medium‐skilled workers. In contrast, higher union density and government consumption spending have positive effects on the labour share. Thus, labour in emerging economies loses out relative to capital as production becomes more integrated across borders.

Inflation and real wages

Within the Italian industrial relations system, the relationship between inflation and collective bargaining has historically been a crucial one. The capacity of collectively agreed wages to protect workers’ purchasing power has been the object of negotiations, fights, and divisions not only between governments, employer associations and trade unions, but also within each of the parts involved. The return to high inflation rates since 2022 has highlighted the inadequacy of Italian collective bargaining institutions in defending real wages.

Selection and the distribution of female real hourly wages in the United States

We analyze the role of selection bias in generating changes in the observed distribution of female hourly wages in the United States using CPS data for the years 1975 to 2020. We account for selection bias from the employment decision by modeling the distribution of the number of working hours and estimating a nonseparable model of wages. We decompose changes in the wage distribution into composition, structural, and selection effects. Composition effects increased wages at all quantiles while the impact of the structural effects varied by time period and quantile. Changes in the role of selection only appeared at the lower quantiles of the wage distribution. The evidence suggests that there was positive selection in the 1970s, which diminished until the later 1990s. This reduced wages at lower quantiles and increased wage inequality. Post 2000 there appears to be an increase in positive sorting, which reduced the selection effects on wage inequality.

Do labour market institutions variables impact unemployment?Evidence from the CEE countries

Purpose: In this study, the aim is to determine whether labour market institutions (LMI) variables im-pacted the unemployment rate in the Central and Eastern Europe (CEE) countries between 2000 and 2017.Methodology: Panel data methods that take cross-sectional dependence into account are used for the analysis. Results: Empirical findings show that real minimum wages, tax wedge, and union density do not impact the unemployment rate in Poland, Latvia, and Estonia, while these variables impact the unemployment rate in Slovakia, the Czech Republic, Slovenia, and Hungary.Conclusion: As a result of the research, it is concluded that the LMI variables do not have a substantial effect on the unemployment rate in Poland, Latvia, and Estonia. On the other hand, the LMI variables have a substantial impact on the unemployment rate in Slovakia, the Czech Republic, Slovenia, and Hungary. Therefore, it is understood that the LMI variables have an influence on the unemployment in only four out of seven CEE countries.