Wage Dynamics Research Articles

An Insight into Wage Dynamics and Inequality Scenario under Changing Landscape of Rural India

This article examined the level and recent trends in rural wages, the extent of the wage gap and inequality across the states in agriculture. Recent trends showed a continuous and persistent rise in real wages for agricultural and non-farm activities in rural areas. Inequality in wage rate was lower among diverse agricultural operations within and across the year(s). Regression analysis indicated that the wage rate was agriculture was positively influenced by productivity, period and labour availability. Effective implementation of minimum wage law and equal pay for work of equal value would reduce the wage gap and inequality.

Task Discretion, Labor-market Frictions, and Entrepreneurship

Abstract An agent can perform a job in several ways, which we call tasks. Choosing agents’ tasks is the prerogative of management within firms, and of agents themselves if they are entrepreneurs. While agents’ comparative advantage at different tasks is unknown, it can be learned by observing their performance. However, tasks that generate more information could lead to lower short-term profits. Hence, firms will allocate workers to more informative tasks only if agents cannot easily move to other firms. When, instead, workers can easily move to other firms, agents may prefer to become entrepreneurs and acquire task discretion, even if their short-term payoff is lower than employees. Our model generates novel predictions with respect to, for example, how the wage dynamics of agents who switch between entrepreneurship and employment are affected by labor and contracting frictions. (JEL D83, J24, J62, J63, L26, M13).

Wages in Russia in 2015-2021

The article presents analysis of the wage dynamics in the Russian Federation in 2015-2020 and the first half of 2021. In 2018 Russia changed the methodology for calculating separate items in the Balance sheet of the population monetary income and expenses. This concerned, among other things, the item of payment for work, from which hidden (officially unaccounted for) wages and other cash receipts were excluded, and payroll fund of employees in organizations was singled out. Besides, Rosstat developed methods for estimating average wages of all employees (working in organizations, for individual entrepreneurs, farmers and individuals) and published the results for 2015-2021. The article also presents author's estimation of the average wages of employees working for individual entrepreneurs, farmers, and individuals in 2018-2020. In 2020 average wages of these categories of workers made 72.9% of the average wages of all employees and 60.2% of the employed in organizations. Due to lack of official data on the wage differentiation of all employees, the article provides variants of its estimation for 2017-2019 using primary data from SSPI. Low wages of those working for individual entrepreneurs, farmers and individuals serve as a factor of higher earnings inequality of all categories of employees. In 2019 R/P 10% ratio made by different calculation algorithms 18.5 and 15.7 times against 13 times for those employed in organizations. There are provided results on the impact of the minimum wage on the level and differentiation of wages.

Farm wage and Rice Price dynamics in Bangladesh

Empirical findings explaining the wage-price nexus in Bangladesh are diverse and conflicting. A proper understanding of the relationship between food prices and farm wages is essential for planning policies in support of the wellbeing and food security of the rural poor. In exploring the link between food prices and rising agricultural wages, this study analyzes the dynamic relations between those two by using monthly data from 1994 to 2014. A standard vector error correction model (VECM) is implemented to determine the short-run and long-run relationships between wages and food prices in eight divisions in Bangladesh. In addition, we use autoregressive distributed lag (ARDL) models to estimate the pass-through coefficients and to compare the short-run effects of rice price and urban wage shocks on agricultural wages. We find statistical evidence for a structural break between January 2007 and January 2009 in the relationships of the variables in all divisions. Different to the period until 2007/2009, after the structural break, in six out of eight divisions, rice price shocks do not transmit to the farm wages in the short-run. Moreover, our findings show that in the long-run food prices have become less influential in explaining the changes in farm wages while the influence of urban wages has become stronger in some divisions.

Wage and unemployment: Evidence from online job vacancy data

This paper examines the relationship between labour market conditions and wage dynamics by exploiting a unique dataset of more than one million online job vacancies. We find a weak trade-off between aggregate wage inflation and unemployment. This link becomes more evident when the wage inflation is disaggregated at the sectoral and occupational level. The examination, using vacancy-level data, shows a negative correlation between offered wage and unemployment. The degree of wage elasticity, however, is different across regions and skill segments. Our findings suggest the importance of micro-level data's unique dimensions in examining the wage – unemployment relationship.

Employer learning, job changes, and wage dynamics

AbstractThis paper takes a new approach to testing whether employer learning is public or private. We show that public and private learning schemes make two distinct predictions about the curvature of the wage growth path when a worker changes jobs, because less information about the worker's productivity is transferred to a new employer in the private learning case than in the public learning case. This prediction enables us to account for individual and job‐match heterogeneity, which was not possible in previous tests. Using the National Longitudinal Survey of Youth 1979, we find that employer learning is public for high‐school graduates and private for college graduates.

Informal pay gaps in good and bad times: Evidence from Russia

Informal work is traditionally large in Russia and has further increased in the recent years. We explore the implications of this shift in terms of wage dynamics. Our characterization is based on the estimation of informal pay gaps at the mean and along the wage distribution, relying on the Russian Longitudinal Monitoring Survey for 2003–2017. Our approach comprises three original features: we rely on unconditional quantile effects of informality, we incorporate quantile-specific fixed effects using a tractable approach, and we suggest a treatment of the incidental parameter bias. Over the whole period, informal wage penalties are relatively small and do not suggest heavily segmented labor markets, even at low wage levels. Yet, in the past decade, a substantial negative selection into informal employment and self-employment has taken place, on average and especially at low earnings. Economic downturns and labor market policies have likely contributed to the shakeout of less productive workers in the formal sector, making the low-tier informal sector more of a last resort.

Education, wage dynamics, and wealth inequality

To what extent does heterogeneity in education contribute to wealth inequality and life-cycle savings, and through which pathways? Using the Panel Study Income Dynamics (PSID) data, I estimate skill-specific wage processes, allowing for both deterministic between-group wage dispersion and stochastic within-group wage dispersion. I evaluate the quantitative implications of these wage processes using an incomplete-markets overlapping-generations general equilibrium model in which households choose their education and labor supply. I find that allowing wage processes to vary by skill levels is crucial to understanding wealth inequality and life-cycle savings of skilled and unskilled households. Importantly, stochastic within-group wage dispersion plays a key role in explaining the concentration of wealth at the top and the large difference in the life-cycle savings between the two skill groups.

The impact of credit shocks on the European labour market

ABSTRACT The sovereign debt crisis led to financial difficulties for European firms and a decline in the use of labour input. We use qualitative firm-level data for 24 European countries, collected within the third wave of the Wage Dynamics Network (WDN3) of the ESCB, to propose a cross-country analysis of the relationship between a credit shock and labour markets. We first derive a set of indices measuring difficulties in accessing the credit market for the period 2010–2013. Second, we provide a description of the relationship between credit difficulties and changes in labour input, both along the extensive and the intensive margins as well as on wages. We find strong and significant correlation between credit difficulties and adjustments along both the extensive and the intensive margin. In the presence of credit market difficulties, firms also cut wages by reducing the variable part of wages. This evidence suggests that credit shocks can affect not only the real economy, but also nominal variables.

Invisible Shifts in and Out of the Classroom: Dynamics of Teacher Salary and Teacher Supply in Urban China

Background The remarkable economic growth in contemporary China is unprecedented, but scholars voice concerns regarding unintended consequences during this transitional phase. Of particular concern is the constant challenge to staff schools with highly qualified teachers. Purpose This study sets out to understand subtle yet consequential changes in schools during a sustained period of economic boom, through the lens of teacher occupational choice. This study contributes empirically to the teacher occupational choice literature by identifying the magnitude of lag in wage growth and returns to human capital in the teaching profession, and their critical relationship affecting high-ability workers’ career decisions. Research Design Using a nationally representative repeated cross-sectional data set spanning a quarter century (1988–2013), this study estimates Mincer earnings function regression models and multinomial probit regression models to assess wage differentials and heterogeneous rates of return to human capital in teaching and nonteaching sectors, in addition to untangling complex relationships between worker quality and observed occupational choice. Findings We documented several novel facts about teachers in contemporary urban China. First, we found sharp shifts in the relative career attractiveness of teaching, such that a 13% wage premium for teachers in 1988 dissipated over time and regressed to a 11% wage penalty in 2013, when compared with similar workers. Second, returns to tertiary education are markedly higher in nonteaching careers—about 11–15 percentage points more so than in teaching. Third, highly educated workers in younger cohorts are half as likely to become teachers relative to older cohorts, particularly in recent years. Conclusions The authors contextualize findings and discuss appropriate policy implications. Most importantly, holding back teacher wage levels from broader market prices has consequential effects on teacher supply. Policy makers need to reconsider existing forms of teacher compensation arrangements and develop sustainable wage dynamics that can attract and retain bright minds to enter and stay in teaching.

Análisis de los Retornos de la Educación para los Jefes de Hogar en Colombia

En este artículo se presenta una estructura conceptual entorno a capital humano y la ecuación de los salarios, en paralelo, se hace un análisis econométrico de la dinámica de salarios de los jefes de hogar en Colombia para los anÞos 2013, 2014 y 2015 mediante modelos probabilísticos de tipo Multilogit. El estudio se realiza a partir datos tomados de la Encuesta de Calidad de Vida del DANE para cada año analizado. Respecto a los modelos economeìtricos utilizados, se estiman las probabilidades de factores asociados al capital humano, los anÞos de educacioìn y niveles acadeìmicos tales como teìcnico, tecnoloìgico, universitario y posgrado. Además, se comprueba que, en efecto con el paso de los anÞos, la experiencia genera efectos decrecientes sobre la probabilidad de devengar un mejor salario y se evidencia que existe brecha salarial por género, por lo que los jefes de hogar hombres en cada uno de los periodos analizados tienen una mayor probabilidad de ganar mensualmente un salario alto, en comparación con un jefe hogar mujer.

Socio-Economic Aspects of the Development of Agricultural Enterprises in Irkutsk Region

Living standards and the level of socio-economic development are inextricably linked to the economic efficiency of production, distribution, exchange, and consumption of the material goods. The productivity and salary level of agro-industrial enterprises have a decisive influence on the level of agricultural enterprises development and financial capabilities. The article analyzed the impact of the main factors on the workers wages in Irkutsk region agricultural enterprises. The study focused on the analysis of wage dynamics and its impact on productivity in agricultural enterprises. The study concluded that there is a need to develop, strengthen and improve production by creating conditions for the development of industrial and agricultural production, which will lead to the creation of additional jobs and increase the gross domestic product production to provide the population with high quality food products.

The changing composition of academic majors and wage dynamics: Beyond mean returns

This paper studies the effects of the changing composition of academic majors during expansion of higher education on the dynamics of wage distribution. Using a unique dataset constructed from open-ended responses in the Russia Longitudinal Monitoring Survey, we conduct a structural analysis of wage distribution dynamics for higher education graduates over 2002–2016. In addition to the standard mean wage estimations across majors we explore within-major and across-cohort variation, as well as major-specific permanent and transitory variance components and their time paths.The results suggest that changing wage inequality among university graduates is due to both changes in skill prices and wage shocks induced by economic fluctuations. Moreover, variation in skill prices relates to equilibrium effects induced by changes in the supply of graduates specialized in different fields. Uneven expansion in certain majors induces labor market saturation and leads to an increase in the wage variance of graduates from the fastest growing majors. The estimation results also show the importance of accounting for within-major heterogeneity across cohorts, which could reflect differences in student ability distribution, changes in academic content, and changes in educational quality over time. Finally, this study suggests that focusing only on mean wage returns, without assessing the distributional implications, might substantially understate the labor market impact of the changing major composition.

Macroeconomic impact of fiscal policy in Ghana: Analysis of an estimated DSGE model with financial exclusion

This study develops and estimates a standard New-Keynesian DSGE model for the Ghanaian economy, for the analysis of the impacts of fiscal policy shocks on key macroeconomic variables. It also applies the model to examination of the effects of government spending, consumption tax, and labor income tax shocks on household consumption and working hours. The model features heterogeneous households of two types, financially excluded and financially included, and considers two labor markets: perfectly and monopolistically competitive labor markets. We use quarterly time series data from 1985Q1–2017Q4 to estimate the model’s parameters through Bayesian approach. Overall, we find that increased government spending has positive effects on consumption, output, employment and inflation while it turns to crowd-out consumption and to dampen the expansionary effect on output when wages are sticky. Our policy experiment results show that the presence of sticky wage dynamics in the economy requires large fraction (75%) of households who cannot participate in the financial markets in order to generate a rather short-lived positive consumption multiplier of government spending shock. At the disaggregated level, we find that positive consumption and labor income tax shocks decrease consumption by financially excluded households more than that by financially included ones. We also find that whereas financially included households decrease their working hours, financially excluded households increase their working hours in order to mitigate the negative effects of those shocks on their consumption.

Regolazione salariale e sistemi retributivi: il caso delle Utility in Italia

Great Recession has put pressure on wage regulation systems in Italian industries, creating a significant differentiation that leaded to a divergence in terms of wage dynamics, which contrasts with the common trend recorded in the previous decade. At the same time, with the new mechanism linked to the net HICP and introduced in 2009 to regulate contractual renewals, there has been a constant overestimation of future inflation. In assessing this evidence, should be considered not only the alleged escaped risks of a deflationary spiral, but also the actual risks that have arisen in terms of competitiveness deficits. In this paper, the authors explore wage regulation in a long-term perspective, analyzing trends over the past twenty years. Limits and potentials of national statistics are underlined, showing the advantages of further sectoral surveys. This is the case of the survey issued by Utilitalia (Industrial Association of Public Utilities), used here to analyze pay systems on three economic sectors of primary interest: Electricity, Gas-Water and Environmental Services. It is also an example of how detailed data can be used to create a management tool for companies.

How to disappear completely: nonlinearity and endogeneity in the New Keynesian Wage Phillips Curve

ABSTRACT We use a three-regime threshold regression model to assess the ability of the New Keynesian Wage Phillips Curve (NKWPC) to describe wage inflation in the US over the 1965–2018 period. Nonlinearity is clearly supported by the data and it easily resists an endogeneity correction. However, this correction exposes more clearly the shortcomings of the NKWPC as a successful description of wage dynamics in the extreme phases of the business cycles, when unemployment is either low or high. In both cases, it becomes completely flat.

Robust contracts with one-sided commitment

We consider a robust contract with limited commitment in continuous time, in which the principal (firm) is ambiguity averse and seeks robust decisions. First, we find the existence of limited commitment not only attenuates the negative effect of model uncertainty on the firm value, but also makes the firm less pessimistic. Moreover, concerns regarding model misspecification motivate the firm to increase the worker’s exposure to the productivity shocks via the optimal contract. Finally, our theoretical model predicts that the combination of limited commitment and ambiguity generates both right skewness and decreases in the wage dynamics as the empirical data.

Two Stories of Wage Dynamics in Latin America: Different Policies, Different Outcomes

This article explores the variation in the wage distributions of two Latin American countries, Bolivia and Colombia, which have had different political and economic strategies in recent years. Using data from household surveys, a decomposition of the wage distribution in each country using functional principal component analysis is conducted. The results suggest that Bolivia, which has implemented state-centered policies, has experienced a general increase in wages, especially benefiting the least skilled workers and the informal sector. On the other hand, the wage distribution in Colombia, whose economic policy has leaned towards market-oriented principles, has become more concentrated around the median wage, mainly due to changes in formal sector wages.

Low Wage Growth and Job-To-Job Transitions: Evidence from Administrative Data in New Zealand

By using administrative data from New Zealand, we assess the relative importance of job-finding, and job-to-job transition rates for wage dynamics. We exploit the regional variation and find that wages are closely linked to job-to-job transitions and less so to the job- finding rate. Further, the impact of the job-to-job transition rate is stronger at the lower half of the wage distribution. Overall, our findings are similar to Karahan et al. (2017) for the US, which support the prominence of on-the-job search for cyclical wage dynamics.

Wealth creation, wealth dilution and demography

Demographic forces are crucial drivers of macroeconomic performance. Yet, existing theories do not allow demography to respond to fundamentals and policies while determining key macroeconomic variables. We build a model of endogenous interactions between fertility and innovation-led productivity growth that delivers empirically consistent co-movements of population, income and wealth. Wealth dilution and wage dynamics stabilize population through non-Malthusian forces; demography determines the ratios of labor income and consumption to financial wealth. Shocks that reduce population size, like immigration barriers, reduce permanently the labor share and the mass of firms, creating prolonged stagnation and substantial intergenerational redistribution of income and welfare.