Wage Setting Research Articles

Theory of Fair Wage Setting (TFWS)

It has been more than two hundred years many theories related wage determination from supply-side (economics) and demand-side (industrial relation) have been introduced but all are criticized still, no satisfactory wage theory is introduced because markets do not work in reality as the theories assumed to be, on ground reality markets are segmented and complex, there are also many other factors beyond the supply and demand of labour, custom and culture that are determined and influence wages. TFWS matches with real world behaviour and human nature and contributes. To fill gaps this study aims to come out with a new theory name fair wage setting theory (TFWS). To achieve the objective, qualitative research is used while Semi-structured interviews were conducted by applying snowball sampling technique. Previous literature was also treated as a secondary data. This study reveals that, existing general wage determination and minimum wage criteria are the rooted issues that further creates problems like hours of work, union, debt behaviour, productivity and training, youth, taxes, pay settlements, benefits system, nature of non-compliance, employment, informality, income inequality or poverty gender pay gaps etc. To set the fair wage rate, role of timely paid wage, court of employee and employer and government involvement are compulsory. TFWS divided wage determination into parts which are “fix wage” that includes living cost on the economic level and other is the “variable wage” that includes employee contribution. TFWS is significant as it based on the real world. More present study contributes, socially, politically, ethically and economically on global level.

Controlling the Unemployment Rate in South Sulawesi Province through Economic Growth, Provincial Minimum Wage and Inflation

Unemployment in South Sulawesi is very worrying and quite disturbing economic performance in this area. Although the government has made efforts to achieve growth based on employment and increase the minimum wage, conditions have not been able to reduce the unemployment rate itself. The novelty of this research is to try to dig deeper into the interrelationship of minimum wage setting policies, efforts to increase economic growth and efforts to control inflation by the government, to the unemployment phenomenon that occurs in South Sulawesi Province. This study aims to determine how the influence of economic growth, the provincial minimum wage and inflation on unemployment in South Sulawesi Province, Indonesia in 2005-2019. The type of research used is quantitative, namely the research method which is a scientific approach to economic decisions by using multiple linear regression analysis to find out how much influence the variables studied are. The results show that simultaneously economic growth, provincial minimum wages and inflation have a significant effect on unemployment in South Sulawesi Province. Partially, economic growth and provincial minimum wages have a significant negative effect on unemployment in South Sulawesi Province. Meanwhile, inflation has a positive and insignificant effect on unemployment in South Sulawesi Province. The implication of this research is that the government needs to increase quality and more inclusive economic growth based on expanding job opportunities and increasing human capital.Keywords: Unemployment; Economic Growth; Minimum Wage; Inflation

Earning like a Prof: Academic rank wage premia in Ústí nad Labem, Czechia

Abstract The article attempts to estimate the size of the wage premia fetched by ranked academics on the academic market in Ústí nad Labem, Czechia. We employed a large (anonymized) data set of contracts and wages of employees of a medium-sized regional public university in Ústí nad Labem. We used OLS regression in various specifications to determine the wage premia of all educational levels (mainly full professors over associate professors/ docents and associate professors/docents over assistant professors/PhDs) while controlling for many attributes (of employees or contracts) possibly affecting wage levels. The local context regarding the topic of this article is discussed as well. The results generally confirm the intuition and show a clear pattern of increasing wages with levels and ranks. Focusing predominantly on the academic ranks, the monthly premium of associate professors (docents) over PhDs seems to be somewhere between 5 and 6 thousand CZK (185 and 220 EUR), and the premium of full professors over associate professors to an average of around 4 thousand CZK (150 EUR). The latter premium, however, exhibits systematic variation across different schools within the university: in some it is insignificant (around 0), while in others it is rather large and averages around 8 thousand CZK (300 EUR).

Suresh Narayanan Comment on Wage Differentials in Malaysia: Public Employment, Gender, and Ethnicity

Suresh Narayanan Comment on Wage Differentials in Malaysia: Public Employment, Gender, and Ethnicity

Assortative Matching or Exclusionary Hiring? The Impact of Employment and Pay Policies on Racial Wage Differences in Brazil

We measure the effects of firm policies on racial pay differences in Brazil. Non-Whites are less likely to be hired by high-wage firms, explaining about 20 percent of the racial wage gap for both genders. Firm-specific pay premiums for non-Whites are also compressed relative to Whites, contributing another 5 percent for that gap. A counterfactual analysis reveals that about two-thirds of the underrepresentation of non-Whites at higher-wage firms is explained by race-neutral skill-based sorting. Non-skill-based sorting and differential wage setting are largest for college-educated workers, suggesting that the allocative costs of discriminatory hiring and pay policies may be relatively large in Brazil. (JEL J15, J24, J31, J41, J46, J71, O15)

Is industrial relations reform the road to recovery in monopsonistic labour markets?

AbstractThis article considers the national industrial relations policy aspects of the economic recovery agenda in Australia, in the context of the theory of monopsonistic competition, employment and productivity. This framework acknowledges the employer ability to exercise discretion in the setting of wages. The proposed reforms were unlikely to lead to any increase in economic growth through higher labour productivity or employment. Proposed agendas in enterprise bargaining, greenfields agreements and award simplification (as well as union regulation), would principally have reduced labour costs and incomes. In many circumstances, allowing employers to offer lower wages may lead to fewer filled jobs, higher labour turnover and absenteeism and lower employment. The incentive on employers to improve labour productivity may fall. Proposals to more energetically punish wage theft may have had the opposite effects, but these were abandoned by the government despite support from the other parties. In the end, the only part of the reform agenda to pass Parliament concerned changes to the definition and treatment of casual employees, but casual employment grew strongly before the Bill took effect, the crisis the Bill was meant to solve eased before the Bill was passed, and even if successful the changes would have done little to boost labour productivity.

Wage Setting Under Targeted Search

Wage Setting Under Targeted Search

International outsourcing and trade union (de-)centralisation

We study the effects of centralised versus decentralised wage setting in a unionsed duopoly where firms can outsource parts of input production to foreign subcontractors. We show that decentralised (as opposed to centralised) wage setting allows trade unions to capture a larger share of the rents generated by international outsourcing. Consequently, the equilibrium degree of outsourcing is lower under decentralised wage setting, which benefits unions if they are sufficiently employment oriented. We identify situations in which both firms and unions prefer decentralised over centralised wage setting. Thus, international outsourcing opportunities is a potential driver of trade union decentralisation.

The determinants of CEO compensation: new insights from United States

PurposeThe purpose of this paper is to examine the determinants of CEO compensation for sample of the US firms. It emphasizes the presence of executive compensation persistence and the importance of CEO power besides performance while setting CEO pay.Design/methodology/approachThe empirical analysis is conducted on a large sample of US firms during the period 2006–2016. It is based on the generalized method of moments (GMM) models to assess the impact of numerous factors on CEO compensation.FindingsThe main findings reveal that firm performance proxied by accounting-based proxies, as well as market-based proxies, plays a significant role in explaining variations in levels of executive compensation. Moreover, there is a significant persistence in executive compensation among the US sample firms. The authors also document that poor governance conditions (managerial power hypothesis) lead to high compensation levels offered to CEO.Research limitations/implicationsAt the end, without a doubt, the analysis has some limitations that prompt the authors to consider future research directions. One future research avenue that can help better explain the effect of firm performance on the CEO compensation is to study this issue using an international sample to determine whether country-level characteristics (e.g. creditor rights, shareholder rights and the enforcement climate) can influence this relationship. Furthermore, it can be worthwhile to deepen the analysis of CEO power and its impact on CEO compensation. It will be interesting to emphasize how the CEO power interacts with the other governance characteristics and some CEO attributes as CEO gender.Practical implicationsThe paper's findings have implications for practitioners, policymakers and regulatory authorities. First, the findings inform regulators that performance is not the only determinant of CEO pay level. This may warrant increased firm disclosure of the details of the pay structure. Second, the study offers insights to policymakers and members of boards of directors interested in enhancing the design of executive compensation and internal corporate governance, to better align managerial incentives to shareholder interests. Firms should strengthen the board independence and properly constitute the board committees (compensation, risk, nomination…).Originality/valueThis paper presents a comprehensive overview of the CEO compensation determinants. It supplements the classic pay-for-performance sensitivity predictions with insights gained from the dynamics of wage setting theory and managerial power theory. The authors develop a composite index to measure the CEO power in order to test the impact of CEO attributes on CEO pay. Additionally, it verifies whether the determinants of CEO pay depend on firm age and size.

The health effects of wage setting institutions: How collective bargaining improves health but not because it reduces inequality.

Do wage-setting institutions, such as collective bargaining, improve health and, if so, is this because they reduce income inequality? Wage-setting institutions are often assumed to improve health because they increase earnings and reduce inequality and yet, while individual-level studies suggest higher earnings improve well being, the direct effects of these institutions on mortality remains unclear. This paper explores both the relationship between wage-setting institutions and mortality rates whether income inequality mediates this relationship. Using 50years of data from 22 high-income countries (n~825), I find mortality rates are lower in countries with collective bargaining compared to places with little or no wage protection. While wage-setting institutions may reduce economic inequality, these institutions do not appear to improve health because they reduce inequality. Instead, collective bargaining improves health, in part, because they increase average wage growth. The political and economic drivers of inequality may not, then, be correlated with health outcomes, and, as a result, health scholars need to develop more nuanced theories of the political economy of health that are separate from but in dialogue with the political economy of inequality.

Optimal minimum wage setting in a federal system

Minimum wages in the United States are jointly set by federal, state, and local governments, while many other countries have a single national policy. This paper studies the relative merits of centralized and decentralized policy setting. A binding policy is optimal if the benefits from redistribution outweigh the costs from migration, which are relatively steeper for local governments. Centralized policy, though uniform in practice, reduces horizontal migration externalities, which improves decentralized minimum wage setting. Our results therefore indicate that decentralized and centralized policy setting exhibit strategic complementarity; the extent of which depends on mobility and regional heterogeneity. We then calibrate a model of the continental US and find that joint policy setting leads to a small welfare gain over centralization, and closely resembles the social planner’s optimal policies.

Corporate social responsibility in unionised network industries

In a duopoly network industry with decentralised union wage setting, this paper studies the impact of the firms’ engagement in consumer-friendly corporate social responsibility (CSR) on profitability and welfare. It is shown that, regardless of whether the wage setting occurs prior to or after the choice of the CSR levels, being a CSR-type firm rather than a simple profit-maximiser can lead to larger profits and thus higher welfare for their owners/stakeholders. However, the welfare analysis reveals that there is always conflict of interest between the firms’ owners on the one side and consumers, unions, and society on the other side, with respect for the timing of the decision about CSR relative to that of the wage setting.

The Cyclical Behavior of Job Quality and Real Wage Growth

We study the empirical relevance of implicit insurance contracts for wage setting while accounting for cyclical fluctuations in average job quality. Using proxy measures, we find the latter to be acyclical, if not countercyclical, due to the cleansing effects of layoffs during recessions versus quits during expansions. Then, we study the cyclical behavior of wage growth among job stayers to test for contracts, circumventing differences in job quality altogether. Both methods strongly corroborate the prevalence of wage contracts in the labor market and imply a highly procyclical price for labor. (JEL E24, E32, J31, J41, J63)

Wage-Setting Policies, Employment, and Food Insecurity: A Multilevel Analysis of 492 078 People in 139 Countries.

Objectives. To examine the association between wage-setting policy and food insecurity.Methods. We estimated multilevel regression models, using data from the Gallup World Poll (2014-2017) and UCLA's World Policy Analysis Center, to examine the association between wage setting policy and food insecurity across 139 countries (n = 492 078).Results. Compared with countries with little or no minimum wage, the probability of being food insecure was 0.10 lower (95% confidence interval = 0.02, 0.18) in countries with collective bargaining. However, these associations varied across employment status. More generous wage-setting policies (e.g., collective bargaining or high minimum wages) were associated with lower food insecurity among full-time workers (and, to some extent, part-time workers) but not those who were unemployed.Conclusions. In countries with generous wage-setting policies, employed adults had a lower risk of food insecurity, but the risk of food insecurity for the unemployed was unchanged. Wage-setting policies may be an important intervention for addressing risks of food insecurity among low-income workers.

Gender wage gap in Serbia: Inheritance and sources of the wage gap

The aim of this paper is to determine the size, structure, and significance of the differences in wages between men and women during the early transition in Serbia in the 2000s. During that period, a new legislative framework was established in the field of labour relations, which enabled greater liberalisation in the labour market and resulted in a reduction in the activity rate, especially of women. Following the experiences of other post-transition countries, it may be expected that economic and social changes caused by the transitional shocks may stimulate different behaviours in the labour market of both the employers, through their impact on determination of wages, and the labour force, through workers? choice to remain or to permanently exit the labour market. This could affect not only the deepening of gender differences, but also the emergence of discrimination in wage setting. The paper applies the parametric sample selection model, on the basis of which the probability of women?s participation in the labour market is estimated, as well as the wage functions of men and women. Data from the Living Standards Measurement Survey for 2002 and 2007 are used. Theoretically expected results are obtained; children and marital status with a negative sign, and sources of non-working income with a positive sign influence the probability of women?s participation in the labour force. The estimated equations of wages of men and women indicate differences in the structure of wages, which provides the basis for the application of the statistical procedure for the decomposition of the gender wage gap. Examination of the initial hypothesis revealed the presence of a significant gender wage gap, which was the largest in 2002 (10.96%), falling to 5.97% in 2007. The gender wage gap in Serbia cannot be explained by the differences in the observed characteristics of men and women, since they act in the direction of reducing the overall gap and their effect is stable, amounting to between -5.51% (2002) and -5.43% (2007). Therefore, the decline in the gender wage gap is the result of reducing the gap in the unexplained part from 17.43% (2002) to 12.06% (2007). Over the observed period, the unexplained part of the gender wage gap remains persistent and leaves room for consideration of the potential effects of discrimination and possible directions of public policy.

The Effect of Outsourcing on Remaining Workers, Rent Distribution, and Inequality

Firms can decide whether to produce some goods and services in-house or purchase them from the market. Increasingly, they are purchasing from the market—using subcontractors, temp agencies, and other outsourced labor. Low-wage workers' wages decline when they are outsourced. If firms are rent sharing, remaining workers' earnings might increase if there are more rents or fewer workers to share them with. However, little is known about how outsourcing affects remainers, and the consequent impacts on inequality. I analyze the impact of occupational layoff (OL) outsourcing on remainers and inequality using matched employer-employee data based on German social security records. Outsourcing increases remaining workers' long-run earnings by 6% in a sample of 260 OL outsourcing events. Remainers are also more likely to stay at the outsourcing firm. Higher earnings and lower separations is consistent with remainers receiving additional rents. Earnings gains are larger for workers in the bottom-half of the within-firm wage distribution. When comparing effects by collective bargaining agreements (CBAs), outsourcing increases remainers' long-term earnings by 6% in firms with CBAs, and lowers short-term earnings by 3% in firms without CBAs. These results are consistent with a model of wage setting where firms compensate remainers in the presence of a CBA. When there is no CBA, firms do not compensate remainers, and lower their wages. Analyzing the impact of outsourcing on wage inequality, outsourcing reduces within-firm inequality as the lowest-wage workers leave the firm and low-wage remainers are compensated. 11.7% of workers are part of an outsourcing event. Using Recentered Influence Functions, I show a 1% increase in the share of workers part of an outsourcing event increases earnings at the top of the distribution by approximately 10-15%, and the gini index by 10%. Increased earnings at the top of the wage distribution suggests prior estimates underestimate the impact of outsourcing on wage inequality by not accounting for increased wages among remainers, who are relatively high-wage.

Uncertainty‐driven business cycles: Assessing the markup channel

Precautionary pricing and increasing markups in representative‐agent DSGE models with nominal rigidities are commonly used to generate negative output effects of uncertainty shocks. We assess whether this theoretical model channel is consistent with the data. Three things stand out. First, consistent with precautionary wage setting, we find that wage markups increase after uncertainty shocks. Second, the impulse responses of price markups are largely inconsistent with the standard model, both at the aggregate as well as the industry level. Finally, and in contrast to times‐series evidence, our theoretical model robustly predicts that uncertainty shocks have a quantitatively small impact on the economy.

The Ratchet Effect of Transparency in Executive Compensation

How does the mandated disclosure of executive compensation affect the dynamics of compensation within a peer group of firms? We argue in this paper that, under plausible conditions, it will trigger a ratchet effect in the mean level of executive pay within the peer group and is accompanied, hand in hand, by a compression effect in the distribution of executive pay. Specifically, the mean executive pay rises while the variance slumps, in successive increments that taper off over time. These effects occur when participants – i.e., managers and firms – have rational expectations and develop forecasts for the distribution of executive pay within the peer group that take into account the wage setting process at each individual firm. When participants ignore such process and develop forecasts that naively extrapolate from disclosed compensation data, the ratchet and compression effects continue to occur and become more powerful and long lasting.

Wage Setting Behaviour of Firms in Industrial Estates of Khyber Pakhtunkhwa, Pakistan

The objective of the study is to analyze the wage setting behaviour of firms. For this study four major industrial estates of Khyber Pakhtunkhwa. Using stratified random sampling, data is collected from 342 firms. Multinomial logistic model is used to estimate the effects of determinants on wage change. Most of the firms change wage rate once in a year. Majority of the firms follow time-dependent wage policy. Half of the firms, which are following time-dependent wage policy, change the wage rate at the end or start of the fiscal year. Most of the firms are not found to index wages. Moreover, the percentage of firms not involved in wage indexation is higher for daily workers than for permanent worker. Labor productivity, employment level in the economy, government regulations, taxes, demand for the product, and inflation are important factors of wage change, but the most important factor is the labour productivity and least important is pressure from the labour union. Imperfect competition and size of the firms are the important determinants of wage flexibility, while wage indexation, information set of expected inflation and fringe benefits provided to workers are the important determinants of wage rigidity. It is important for Pakistan to avoid wage cuts at the times of recession and disinflationary policies be carefully designed as sacrifice ratio, albeit moderate, is not zero.

Labour Share and Productivity Dynamics

Abstract We pose technology shocks where the innovation is biased towards more recently installed plants. On one extreme, the shock is like a neutral technological shock, while on the other end it resembles investment-specific technological shocks. We embed these shocks in a model with putty–clay technology and estimate it requiring that the model replicates the volatility properties of the Solow residual and the overshooting property of the labour share of output. Our estimates show that putty–clay nature of technology, a time bias towards new plants and competitive wage setting replicate well the overshooting property.