Wage Adjustment Research Articles

Welfare Employment and Its Impact on the Agricultural Sector Workforce in Trinidad, West Indies

The agricultural sector in Trinidad and Tobago is characterized by a labor shortage. A qualitative research design was used to investigate the impact of a national welfare employment program, on the agriculture labor sector. The study recruited n = 19 Community-Based Environmental Protection and Enhancement Program (CEPEP) employees, n = 10 farmers and n = 7 agricultural professionals for in-depth interviews and focus group sessions. A review was conducted of newspaper articles and national budget statements for content related to CEPEP and agriculture. A thematic analysis was conducted to establish themes from the data gathered from the participants and from the media review. The themes emerged were “CEPEP’s benefits to agriculture”, “Labor shortages in Agriculture”, “Convenience Employment” and “Challenges to CEPEP in Agriculture”. The study concludes that welfare employment can be incorporated into the development agenda for agriculture in Trinidad and Tobago once the issues of capacity building, retooling and mentorship, wage adjustments are factored into a structured program.

Phillips Curve: The Greek Case

One of the most important problems facing Greece is the long-term and high-level unemployment rate. The Economic Adjustment Programmes (EAPs) focused on the supply side of the economy, aiming at the adjustment of prices and wages, draw on the classical economic model, as it is widely accepted that internal devaluation policies keep inflation low. This article attempts to examine whether the Keynesian theory and the Phillips Curve, which shows the relationship between unemployment and inflation, apply in the case of the Greek economy. We use descriptive statistics, ordinary least squares (OLS) and VAR Analysis to examine the relationship between the variables. According to the results, there is a negative correlation between unemployment and inflation in Greece, thus confirming the Phillips Curve hypothesis. Finally, results show that unemployment is less dependent on inflation compared with the past, and there are numerous other decisive factors affecting unemployment.

A Model of Nominal Wage Stickiness

ABSTRACT This paper builds a parsimonious model of nominal wage stickiness based on wage dispersion induced by search frictions. The paper shows that this model can explain those salient features of wage adjustment in the data, including the average frequency of wage adjustment, the average duration of a wage, and the size distribution of wage changes.

Habit formation and wage determination

We analyse the implications of habit formation relating to wages in a multiperiod efficiency‐wage model. If employees have such preferences, their existence provides firms with incentives to raise wages and reduce employment over time. Greater intensity does not necessarily have the same consequences, because wage adjustments counteract the initial level impact. The firm's response additionally depends on the wage dependency of dismissal costs, because such costs make an increasing wage profile over time more attractive and mitigate the effects of greater intensity of habit formation. We further show that short‐lived productivity shocks have long‐lasting wage and employment consequences. Moreover, habit concerns by firm owners reduce wages.

Performance sensitivity of non-executive compensation in China: The role of economic policy uncertainty

This paper examines the impact of economic policy uncertainty on non-executive employees from the perspective of pay-performance sensitivity (PPS). Economy-wide uncertainty can trigger adverse impacts for businesses, and in response enterprises may adjust employee pay to maintain their level of activity. Using firm-level data on A-share companies listed on the Shanghai and Shenzhen Stock Exchanges during 2003–2016, this paper finds that better-performing firms pay higher wages on average, which they adjust only during uncertain times. We also show that the impact of economic policy uncertainty on PPS is more pronounced in the context of labor-intensive, highly competitive industries and state-owned enterprises, because they tend to respond to uncertainty via wage adjustment. The evidence demonstrates that the pay-performance link is much weaker during uncertain times, when different subgroups react differently. However, our finding of a robust pay-performance relation holds, even with a range of firm-level controls and accounting for different levels of firm heterogeneity.

The mitigation potential of eco-taxation on carbon emissions: income effects under downward rigid wages

Eco-taxation is the preferred market based tool for achieving mitigation of CO2 emissions and fostering sustainability. It works through tax-induced changes in the price of polluting activities while ideally transferring the environmental cost to emitters and users. The initial eco-tax signaling is transmitted and further amplified to the rest of the economy through the structure of cost interactions. In particular, real-world economies work under wage adjustment rules that reflect downward rigidity in labor costs when facing rising prices. These common rules may affect the mitigation capacity of the eco-tax policies. We study this issue using an inter-industry model in which we overcome the classical dichotomy between prices and quantities thanks to the novelty of connecting consumption demand with the changes in private income levels that would follow from the enacted eco-tax. We isolate income effects by keeping the given productive structure of the economy as unaltered as possible. In this sense, the proposed model has a bit of a neo-ricardian flavor. We implement the model and check the mitigation effectiveness of two different eco-tax policies using recent tabular data for the Spanish economy in 2015. The main conclusion is that we would not observe double benefits, even when all eco-tax collections are recycled back into the economy.

A NOTE ON THE UNIQUENESS OF STEADY-STATE EQUILIBRIUM UNDER STATE-DEPENDENT WAGE SETTING

Does wage setting exhibit strategic complementarity and produce multiple equilibria? This study constructs a discrete-time New Keynesian model in which households choose the timing of their wage adjustments endogenously subject to fixed wage-setting costs. I explore steady-state equilibrium of the state-dependent wage-setting model both analytically and numerically. For reasonable parameter values, complementarity in wage setting is weak and the steady-state equilibrium is unique.

A Hedonic Wage Regression Model for Vulnerable Workers in Malaysia: The Use of Exclusion Restriction as a Remedy for Self-Selection Bias

This paper uses an exclusion restriction variable as the key to resolve an identification problem in self-selection bias of a wage regression model. The study basically utilizes Hedonic Wage Theory (Rosen 1986, 1974) to test the relationship between vulnerable workers and wage. Analysis was made using the Mincerian semi-log earnings function (Mincer 1974) specified in the tradition of Becker’s Human Capital Model (Becker 1964) with a correction for self-selection bias. A total of 1705 private sector employees were selected and the result showed that the coefficient for predicted vulnerable worker variable was significant but non-positive. The implication of this result is that no adjustments in wages are made to compensate workers for undesirable job conditions. A third party, namely government interventions, is therefore needed in order to protect and enhance the well-being of the vulnerable workers.

El gobierno venezolano y la política salarial implementada a los profesores universitarios (2000-2018)

El artículo analiza la política salarial impuesta por el gobierno nacional a los profesores universitarios en Venezuela, desde el año 2000 al 2018. Se presentan tres subperiodos de análisis y una reflexión final. La política salarial –estructura del salario, escala del salario, interescala salarial y mecanismo de ajuste del salario– legítima y reconocida por los académicos para el inicio del periodo en estudio estuvo enmarcada en el contenido de las Normas de Homologación, hoy desconocidas por el gobierno. Entre las principales violaciones de la política salarial se evidencia la ruptura de la escala salarial, la modificación de los valores de la interescala y la implementación de otros criterios para el ajuste de los salarios.

Технологический прогресс и рынок труда: влияние на занятость, безработицу и рабочее время (Technological Progress and the Labor Market: Effects on Employment, Unemployment and Working Time)

Russian Abstract: Данная работа посвящена рассмотрению влияния современных и будущих технологий на рынок труда. Было проанализировано насколько оправданы ожидания массовой безработицы в России и мире, и какие другие последствия технологические инновации могут нести для рынка труда. Отдельное внимание было уделено предпринимаемым мерам государственной политике на рынке труда. Анализ более 200 программ, проводимых службами занятости в странах Европейского Союза, привел к парадоксальному выводу: несмотря на постоянно звучащие намерения о реформировании основных мер политики на рынке труда, европейские службы занятости продолжают использовать стандартный набор практик. В целом это традиционные меры, никак не связанные с четвертой промышленной революцией. Российские исследования не находят вклада технологических изменений на российский рынок труда. Однако, принимая во внимание особенности рынка труда в России, можно предположить, что подстройка к технологическим изменениям будет происходить не через канал занятости и безработицы, а через подстройку заработных плат. English Abstract: This work is devoted to considering the impact of modern and future technologies on the labor market. It was analyzed how the expectations of mass unemployment in Russia and the world are justified, and what other consequences technological innovations may have for the labor market. Special attention was paid to measures taken by government policy on the labor market. An analysis of more than 200 programs conducted by employment services in the countries of the European Union led to a paradoxical conclusion: despite constantly voiced intentions to reform the main labor market policies, the European employment services continue to use a standard set of practices. In general, these are traditional measures that have nothing to do with the Fourth Industrial Revolution. Russian studies do not find the contribution of technological change to the Russian labor market. However, taking into account the peculiarities of the labor market in Russia, it can be assumed that the adjustment to technological changes will occur not through the channel of employment and unemployment, but through the adjustment of wages.

Professional entry into equine medicine

In the present study phone interviews on working hours, salary, professional satisfaction and other topics were carried out with 30 equine veterinarians. None of the participants had more than five years of work experience. The gross annual wages ranged from CHF 36'400 to CHF 91'500. The study participants worked 42 to 93hours per week. Only 13% were moderately satisfied with the job, the remaining participants were satisfied to highly satisfied. Sixty percent of the study participants were dissatisfied with their wages and wished to be paid according to the Swiss Veterinary Association (GST) salary recommendations. Five out of 27 wages were within the recommended ranges. The lowest wages were paid at the universities. Sixteen people worked more than the legal maximum of 50 hours a week. A big difference in total working hours per week existed. Especially since part-time workers had more working hours than participants in a full-time job. The study reflects the situation before 2018 and especially at the universities, before the introduction of a new employment contracts with a 50h week, wage adjustments and defined times for further training.

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.

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.

Wage adjustment practices in Russian firms

Wage adjustments for employees are a reactive mechanism to changing market conditions and form a significant part of pay policy. Though various attempts to explore wage levels and wage differentials have been made, wage adjustment policies remain an understudied topic. This paper analyses the determinants of wage adjustments based on data from Russian companies 2015–2017. The analysis is based on detailed data from an employer survey which covers more than 5,000 firms in both the public and private sector. The study adopts probit models to identify the reasons for wage revisions, depending on internal employer characteristics and external labour market conditions. The results are in line with previous research on the topic and suggest that both internal and external factors influence wage adjustments. A wage adjustment is a reflection of an ability to pay, meaning that revisions are often made by successful firms with high employee turnover. Institutional frameworks, especially trade union activity, affects a firm’s decision to adjust wages, despite the widely-held opinion regarding the insignificance of unions in Russia. This study contributes to the limited literature by analysing the determinants of wage policies depending on a firm’s characteristics. This is the first study of its kind based on extensive Russian data. Wage adjustments for employees are a reactive mechanism to changing market conditions and form a significant part of pay policy. Though various attempts to explore wage levels and wage differentials have been made, wage adjustment policies remain an understudied topic. This paper analyses the determinants of wage adjustments based on data from Russian companies 2015–2017. The analysis is based on detailed data from an employer survey which covers more than 5,000 firms in both the public and private sector. The study adopts probit models to identify the reasons for wage revisions, depending on internal employer characteristics and external labour market conditions. The results are in line with previous research on the topic and suggest that both internal and external factors influence wage adjustments. A wage adjustment is a reflection of an ability to pay, meaning that revisions are often made by successful firms with high employee turnover. Institutional frameworks, especially trade union activity, affects a firm’s decision to adjust wages, despite the widely-held opinion regarding the insignificance of unions in Russia. This study contributes to the limited literature by analysing the determinants of wage policies depending on a firm’s characteristics. This is the first study of its kind based on extensive Russian data.

Rebalancing the Euro Area: Is Wage Adjustment in Germany the Answer?

We assess to what extent wage inflation policies in Germany could contribute to an economic rebalancing in the euro area and the rest of the world. We find that a rise in nominal wage inflation has positive short-run effects on inflation and output in Germany and the rest of the euro area. The duration of constant interest rates and expectations about the monetary policy stance matter to the magnitude of the results obtained. We establish that the modelling of the trade relationships with the rest of the world is of particular importance, as it allows to capture the induced relative price movements and hence changes in competitiveness within the three regions. Our results are obtained from an estimated DSGE model which consists of Germany, the rest of the euro area, and the rest of the world.

Productivity Shocks, Long-Term Contracts and Earnings Dynamics

This paper examines how employer- and worker-specific productivity shocks transmit to earnings and employment in an economy with search frictions and firm commitment. We develop an equilibrium search model with worker and firm shocks and characterize the optimal contract offered by competing firms to attract and retain workers. In equilibrium, risk-neutral firms provide only partial insurance against shocks to risk-averse workers and offer contingent contracts, where payments are backloaded in good times and frontloaded in bad times. We prove that there exists a unique spot target wage, which serves as an attraction point for smooth wage adjustments. The structural model is estimated on matched employer-employee data from Sweden. The estimates indicate that firms absorb persistent worker and firm shocks, with respective passthrough values of 27 and 11%, but price permanent worker differences, a large contributor (32%) to variations in wages. A large share of the earnings growth variance can be attributed to job mobility, which interacts with productivity shocks. We evaluate the effects of redistributive policies and find that almost 40% of government-provided insurance is undone by crowding out firm-provided insurance.

Uncertainty, Wages, and the Business Cycle

We show that occasional deviations from efficient wage setting generate strong and state-dependent amplification of uncertainty shocks and can explain the cyclical behavior of empirical measures of uncertainty. Central to our analysis is the existence of matching frictions in the labor market and an occasionally binding constraint on downward wage adjustment. The wage constraint enhances the concavity of firms' hiring rule, generating an endogenous profit-risk premium. In turn, uncertainty shocks increase the profit-risk premium when the economy operates close to the wage constraint. This implies that higher uncertainty can severely deepen a recession, although its impact is weaker on average. Additionally, the variance of the unforecastable component of future economic outcomes always increases at times of low economic activity. Thus, measured uncertainty rises in a recession even in the absence of uncertainty shocks.

Asymmetric Business Cycles in Segmented Labour Markets

We document the presence of asymmetric business cycles in both regular and contract labour markets in India and investigate the role of nominal wage rigidities and labour adjustment costs in accounting for these asymmetries. Using data from Annual Survey of Industries, we find that (i) the growth rate of output is negatively skewed, (ii) the growth of regular employment is negatively skewed while that of contract employment is positively skewed, (iii) the nominal wage growth of regular workers is positively skewed while that of contract workers is negatively skewed. We show that a standard business cycle model augmented with asymmetric wage adjustment cost for both regular and contract labour coupled with symmetric labour adjustment cost for regular workers does a good job of explaining the asymmetries in both output and employment cycles. We also find that the presence of contract labour relaxes the constraint of downward nominal wage rigidity, and hence decreases the optimal level of grease inflation required in the economy.

Productivity Shocks, Long-Term Contracts and Earnings Dynamics

This paper examines how employer- and worker-specific productivity shocks transmit to earnings and employment in an economy with search frictions and firm commitment. We develop an equilibrium search model with worker and firm shocks and characterize the optimal contract offered by competing firms to attract and retain workers. In equilibrium, risk-neutral firms provide only partial insurance against shocks to risk-averse workers and offer contingent contracts, where payments are backloaded in good times and frontloaded in bad times. We prove that there exists a unique spot target wage, which serves as an attraction point for smooth wage adjustments. The structural model is estimated on matched employer-employee data from Sweden. The estimates indicate that firms absorb persistent worker and firm shocks, with respective passthrough values of 27 and 11%, but price permanent worker differences, a large contributor (32%) to variations in wages. A large share of the earnings growth variance can be attributed to job mobility, which interacts with productivity shocks. We evaluate the effects of redistributive policies and find that almost 40% of government-provided insurance is undone by crowding out firm-provided insurance.

Nominal Wage Adjustments and the Composition of Pay: New Evidence from Payroll Data

We use representative payroll data from Great Britain to document novel facts about nominal wage adjustments, focusing on workers who stayed in the same firm and job from one year to the next. The richness of these data allows us to analyse basic pay and the other components of earnings, such as overtime and incentive pay, while accounting for hours worked. Weekly and hourly basic pay show signs of downward nominal rigidity, but non-basic pay components adjust more commonly. Unusually, these payroll-based data also report the wage rates of hourly-paid employees. A quarter of these workers typically see no change in their wage rates from one year to the next in the same job, and very few experience wage cuts. We exploit the employer-employee link in the data and find evidence of state-dependent pay setting, depending on the business cycle and whether firms are shrinking or expanding. Finally, we show that the basic and non-basic wages of new hires and existing employees are similarly flexible.