Wage Dynamics Research Articles

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.

Job-to-Job Flows and Wage Dynamics in France and Italy

Some recent literature about the U.S. shows that wage dynamics are more influenced by job-to-job flows than by flows into or out of employment. In this paper, we evaluate whether this result holds also for France and Italy, characterized by a different labor market structure. Using comparable administrative data we find that, as in the U.S., in both France and Italy realized job-to-job transitions contribute positively to wage growth. However, since these flows are smaller and display much lower cyclicality than in the U.S., their contribution to aggregate wage dynamics is low, while the contribution of flows into and out of employment remains sizeable. We then look closely at the heterogeneity in the probability of changing job and in the associated wage premium by types of workers and firms. We find that job-to-job flows and the associated gain tend to be larger in high-skilled occupations and for permanent workers. Moreover, as in the U.S., individuals are more likely to move to younger firms, which intensively poach workers from other firms.

Job-to-job Flows and Wage Dynamics in France and Italy

Some recent literature about the U.S. shows that wage dynamics are more influenced by job-to-job flows than by flows into or out of employment. In this paper, we evaluate whether this result holds also for France and Italy, characterized by a different labor market structure. Using comparable administrative data we find that, as in the U.S., in both France and Italy realized job-to-job transitions contribute positively to wage growth. However, since these flows are smaller and display much lower cyclicality than in the U.S., their contribution to aggregate wage dynamics is low, while the contribution of flows into and out of employment remains sizeable. We then look closely at the heterogeneity in the probability of changing job and in the associated wage premium by types of workers and firms. We find that job-to-job flows and the associated gain tend to be larger in high-skilled occupations and for permanent workers. Moreover, as in the U.S., individuals are more likely to move to younger firms, which intensively poach workers from other firms.

The Changing Composition of Academic Majors and Wage Dynamics

We can observe several common trends related to higher education in many countries. First, there is expansion of higher education with a shift towards majoring in the social sciences. And second, there is growing inequality among college graduates in the labor market. In Russia, these trends have been present but with an amplified magnitude in recent years. Constructing a unique data set using open-ended responses to the Russian Longitudinal Monitoring Survey, we use the Russian case to examine the effects of the changing composition of academic majors during expansion of higher education on the dynamics of wage distribution. This paper contains several contributions to the literature. First, we extend standard wage analysis across majors by exploring within-major and across-cohort variation, as well as major-specific permanent and transitory variance components and their time paths. We show that the evolving distribution of wages relates to both changes in skill prices and wage shocks induced by economic fluctuations. Next, we show that 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. Finally, we point out 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.

Worker Flows and Wage Dynamics: Estimating Wage Growth Without Composition Effects

Wage dynamics is closely intertwined with job flows. However, composition effects associated to the different sizes and characteristics of workers entering/exiting into/from employment that may blur the true underlying wage growth, are not typically accounted for. In this paper, we take these composition effects into consideration and compute wage growth in Spain during the 2006-2018 period after netting out the consequences of employment dynamics. Our results show that the true underlying wage growth in the Spanish economy during recessions (expansions) was, on average, significantly lower (higher) that the observed with raw data. This may help to explain some macro puzzles, such as the vanishing Phillips curve.

Dissecting Idiosyncratic Earnings Risk

This paper examines whether nonlinear and non-Gaussian features of earnings dynamics are caused by hours or hourly wages. Our findings from the Norwegian administrative and survey data are as follows: (i) Nonlinear mean reversion in earnings is driven by the dynamics of hours worked rather than wages since wage dynamics are close to linear while negative changes to hours are transitory and positive changes are persistent. (ii) Large earnings changes are driven equally by hours and wages, whereas small changes are associated mainly with wage shocks. (iii) Both wages and hours contribute to negative skewness and high kurtosis for earnings changes, although hour-wage interactions are quantitatively more important. (iv) When considering household earnings and disposable household income, the deviations from normality are mitigated relative to individual labor earnings: changes in disposable household income are close to symmetric and less leptokurtic.

ВЗАИМОСВЯЗЬ МЕЖДУ ЗАРАБОТНОЙ ПЛАТОЙ, ПРОИЗВОДИТЕЛЬНОСТЬЮ ТРУДА И КАЧЕСТВОМ ЧЕЛОВЕЧЕСКОГО КАПИТАЛА

The article assesses the dependence of wages on factors that have a predominant effect on wage dynamics. The cyclic relationship between wages, labor productivity and the quality of human capital is analyzed. The criteria for the effectiveness of strategic management are disclosed. The problems of reproduction of human capital are considered. The reasons for the decline in the quality of human capital due to the low level of wages in the Russian economy are revealed. The main directions of achieving balanced growth rates of labor productivity, wages and reproduction of human capital are identified.

Sufficient Statistics for Frictional Wage Dispersion and Growth

This paper develops a sufficient statistics approach for estimating the role of search frictions in wage dispersion and lifecycle wage growth. We show how the wage dynamics of displaced workers are directly informative of both for a large class of search models. Specifically, the correlation between pre- and post-displacement wages is informative of frictional wage dispersion. Furthermore, the fraction of displaced workers who suffer a wage loss is informative of frictional wage growth and job-to-job mobility, independent of the job-offer distribution and other labor-market parameters. Applying our methodology to US data, we find that search frictions account for less than 20 percent of wage dispersion. In addition, we estimate that between 40 to 80 percent of workers experience no frictional wage growth during an employment spell. Our approach allows us to estimate how frictions change over time. We find that frictional wage dispersion has declined substantially since 1980 and that frictional wage growth, while low, is more important towards the end of expansionary periods. We finish by estimating two versions of a random search model to show how at least two different mechanisms—involuntary job transitions or compensating differentials—can reconcile our results with the job-to-job mobility seen in the data. Regardless of the mechanism, the estimated models show that frictional wage growth accounts for about 15 percent of lifecycle wage growth.

Immigration and Wage Dynamics in Germany

German wages have not increased very rapidly in the last decade despite strong employment growth and a 5 percentage point decline in the unemployment rate. Our analysis shows that a large part of the decline in unemployment was structural. Micro-founded Phillips curves fit the German data rather well and suggest that relatively low wage growth can be largely attributed to low inflation expectations and low productivity growth. There is no evidence – from either aggregate or micro-level administrative data – that large immigration flows since 2012 have had dampening effects on aggregate wage growth, as complementarity effects offset composition and competition effects.

The Impact of Immigration on Wage Dynamics: Evidence from the Algerian Independence War

AbstractThis paper investigates the dynamics of wage adjustment to an exogenous increase in labor supply exploiting the sudden and unexpected inflow of repatriates to France resulting from Algerian independence in 1962. I measure the impact of this particular supply shift on the average wage of pre-existing native workers across French regions between 1962 and 1976. I find that regional wages decreased between 1962 and 1968, before returning to their pre-shock level 15 years after. I also investigate the dynamics of skill-specific wages in response to the regional penetration of repatriates and find that the wages of high and low educated native workers declined initially but fully recovered by 1976.

Comparative Analysis of Current Trends in Wage Dynamics in Ukraine and in the European Union

The purpose of the current research is the systematic analysis of the current state of the labor market in Ukraine in the context of the regional wage formation. Detailed literature reviews indicated lack of research on wage dynamics in Ukraine, which determines the relevance of the conducted study. During the research, the following methods have been used: general scientific methods of system analysis and synthesis; generalization, systematization, and grouping of data; modern statistical and mathematical instruments, in particular, methods of the system dynamics. Study results. The comprehensive empirical assessment of the wage dynamics revealed the presence of the significant gap in the labor market development between Ukraine and European countries. Similar findings were also confirmed by the estimation and realization of the elaborated system dynamic model of the Ukrainian labor market. Overall, there are several possible explanations of the occurred regional wage divergence in the labor market. On the one hand, it may be caused by the huge variation in housing costs between regions. The cost of living in metropolitan areas, innovation centers and business areas are much higher than in the periphery in Ukraine. On the other hand, not all factors are appeared to be mobile across regions. Moreover, it was also interesting to analyze structural changes in employment across all Ukrainian regions. Calculation of the CSC correlation value indicated that Ukrainian regions have experienced different scale of structural shifts in employment affected by macroeconomic and financial instability. Conclusions. An empirical assessment of the wage dynamics over the years and testing of the wage convergence hypothesis showed that EU members demonstrate income converging pattern: those with the lowest initial net income level (Romania, Bulgaria, Baltic states, Hungary, etc.) demonstrated the highest growth rate in wages. In contrary, regional wage analysis revealed that in Ukraine the highest growth rates are presented in the most industrially developed regions, such as Kyiv, Zaporizhzhia, Dnipropetrovsk, Donetsk, Luhansk (before ATO), Mykolaiv, etc. Such the pattern is called wage divergence and it is not a favorable phenomenon in the context of the sustainable regional development of the country. This trend only exacerbates existing internal imbalances in the regional development of Ukraine: highly developed regions and agglomeration continue to develop at a rapid pace, while the periphery is in a situation of economic and demographic stagnation. Consequently, the main goals of the state policy in the field of labor market stabilization should be enhancing wage bargaining by efficient activity of the trade unions; advanced revision of the tax legislation in order to formalize the shadow share of the labor market; the reduction of unemployment through the efficient use of labor resources and the creation of new jobs, which will favorably contribute to the country’s economic growth in the future.Article received 10.04.2019

Limit cycles in a model of supply-side liquidity/profit-rate in the presence of a Phillips curve

In the present paper, we study how the dynamics of Foley’s model may be affected by the introduction of a money wage Phillips curve with a perfect spill-over of price inflation on wage inflation. The upshot is a model with endogenous price and wage dynamics with unstable equilibrium, meaning that the integration of the Foley liquidity/profit rate cycle with the Goodwin cycle requires state intervention to stabilize the economy. With this approach, we show that Foley’s initial insight is consistent with flexible prices and wages only in the presence of a rule for money supply. The stable equilibrium, in this case, may degenerate into a limit cycle if the growth rate of liquidity increases to a sufficient degree. To illustrate this result, we carry out the analysis both regarding general functions as well as in terms of a particular example.

Estimating a New Keynesian Wage Phillips Curve for South Africa

Abstract This article estimates a New Keynesian Wage Phillips Curve for South Africa to investigate the responsiveness of nominal wages to labor market conditions. The estimation is based on a model with staggered nominal wages setting, where all variations in hired labor input are taking place at the extensive margin. First, we estimate the model using aggregate data from 1971 to 2013. Aggregate estimation results show that private sector nominal wages are not very responsive to employment conditions, while they also reveal a certain sensitivity to inflation and quite a good correlation with inflation expectations. On the other hand, the relationship between nominal wage inflation and price inflation is quite strong and robust for the whole sample. However, it becomes quantitatively weak for the inflation targeting period. In that period, trade unions’ inflation expectations are, instead, strongly correlated with nominal wage inflation. In the second part of the article, we assess the response of nominal wages to employment, labor productivity, and output prices, given the reservation wage using a panel of nine industrial sectors over the period 1970–2013. The findings confirm that nominal wage inflation has consistently outpaced the growth in productivity, even after correcting for price inflation, and that employment conditions had little effect on wage dynamics. We also test for the possibility that the dynamic of wages is anchored by an underlined reservation wage to investigate the presence of an error correction term in the wage equation for South Africa. The overall picture that emerges from the analysis is that of a wage formation mechanism that is very insensitive to overall macroeconomic conditions.

Immigrants’ Wage Performance in a Routine Biased Technological Change Era: France 1994–2012

Over the period 1994–2012, immigrants’ wage growth in France outperformed that of natives. We investigate to what extent changes in task‐specific returns to skills contributed to this wage dynamics differential through two channels: changes in the valuation of skills (price effect) and occupational sorting (quantity effect). We find that the wage growth premium of immigrants is mainly explained by the progressive reallocation of immigrants toward tasks whose returns increase over time. Immigrants seem to have taken advantage of labor demand restructuring driven by globalization and technological changes.

Wage Dynamics of Vocational Education Employees in Far North

The article analyzes the dynamics of wages of teachers in the sphere of professional education of the Russian Federation, which was applied to the regions of the far North and equated localities as of 01.01.2018. Analyzed regional features of changes in wages of the teaching staff in 20132018 on two levels of education: elementary and secondary professional education and higher professional education, due to the necessity of execution of the decree of the President of the Russian Federation of May 7, 2012 No. 597 «On measures to implement the state social policy» (hereinafter referred to as the Decree of the President of the Russian Federation 2012). The factors that determined the degree of achievement by 2018 of target indicators on the level of remuneration of teachers of vocational education in the regions of the country are highlighted.

Governor Baffi’s View on the Italian Great Inflation

Baffi’s interpretation of Italy’s Great Inflation in the 1970s departs from the interpretations it traditionally receives. Traditional interpretations bring back inflation to the need to cover public deficits or to the prevailing type of industrial relations and to high wage dynamics. Baffi departs from these explanations and sees inflation as the outcome of a social conflict. This conflict, however, is not limited to income distribution but also relates to wealth distribution. According to Baffi inflation, reducing saving, had a penalizing effect on economic growth.

A simple method to estimate large fixed effects models applied to wage determinants

Models with high-dimensional sets of fixed effects are frequently used to examine, among others, linked employer-employee data, student outcomes and migration. Estimating these models is computationally difficult because of the high-dimensional design matrix. I present a simple algorithm to compute the OLS estimates of large two-way fixed effects (TWFE) and match effect models including estimates of the fixed effects. The algorithm simplifies specification tests and variance estimation even with multi-way clustered errors. An application using German linked employer-employee data illustrates key advantages of the algorithm: Omitting match effects substantially affects estimates including the gender wage gap. Analyzing the estimated fixed effects suggest that firm fixed effects are the main channel through which job transitions drive wage dynamics, which underlines the importance of firm heterogeneity for labor market dynamics.

Wage dynamics in light of the structural changes in the labour market across four more economically developed countries of Europe

ABSTRACT This paper investigates the evolution of wages and wage inequality in four European countries during the economic crisis in light of important shifts in the occupational structure. Through recentered influence function regression for quantiles of European Union Survey on Income and Living Conditions data, this analysis links research on the primary forces of both wage and wage inequality to the decomposition of their changes between 2005 and 2013 into the composition effect and the wage structure. France and Germany show decreasing wage inequality despite having opposite changes in wages, whereas the United Kingdom and Italy show increasing wage inequality while maintaining opposite changes in wages. The wage structure has a greater influence on generating variation in the real salary, and the composition effect mostly explains the change in wage inequality with varying intensity throughout the distribution. Italy is the only country whose wage structure significantly contributes to wage inequality.

Wage dynamics and inequality in the Brazilian formal labor market

This paper investigates the decrease in wage inequality among working age men in the Brazilian formal labor market by decomposing it into its permanent and transitory components. The permanent component refers to workers’ productivity characteristics such as education and abilities, whereas the transitory component relates to noise caused by economic instability. We use data from the Annual Reports of Social Information (RAIS) from 1994 to 2016, covering periods of both economic instability and stability. Our proposed model includes year and cohort specific effects in both components and we use minimum distance methods to estimate our parameters of interest. Overall we observe a downward trend in wage inequality levels for most cohorts during the entire period. However, different sources are associated with this decrease in different sub-periods. This decline can be attributed to reductions in the transitory component from 1994 to 2005 (related to the economic stabilization process) and in the permanent component from 2010 to 2016. Moreover, our results suggest that the permanent component has an important role in explaining the wage inequality level in Brazil, especially considering older cohorts, even though its share in terms of total variance has decreased over the 2010s. Finally, we show that age and education are accountable for a great share of permanent inequality, with this percentage being even greater for younger cohorts, although their relative importance also decreased over the years.

Wage Flexibility in Russia: Empirical Evidence from Microdata Analysis

The paper discusses the real wage elasticity to unemployment and GDP in Russia. An approach based on panel microdata about earnings of individuals has been applied. This methodology helps to avoid a number of difficulties that are created when aggregated analytical data on the average wage dynamics are used. The study has indicated some conclusions. Firstly, a review of estimations from other countries based on the same methodology is provided. The results confirm the conclusion about higher wage elasticity to unemployment in Russia than in many developed countries. However, the real wage elasticity to GDP in Russia is comparable with the same elasticity in other countries. Secondly, the use of microdata facilitates the evaluation of real wage flexibility for particular groups of workers and for different types of jobs: in other words, the heterogeneity of wage flexibility. As shown by calculations, wage flexibility is higher for young men living in the city and working in the private or informal sector of the economy. Moreover, it was found that wage flexibility of workers who have changed jobs during the year is higher than that of those who have remained with the same employer. Thus, interfirm mobility contributes to high wage flexibility in Russia: during economic growth employees, on average, newly start better paid jobs, whereas during crises they switch to low-paid jobs.