Does Industrial Composition Matter for Wages? A Test of Search and Bargaining Theory

Does switching the composition of jobs between low‐paying and high‐paying industries have important effects on wages in other sectors? In this paper, we build on search and bargaining theory to clarify a key general equilibrium channel through which changes in industrial composition could have substantial effects on wages in all sectors. In this class of models, wage determination takes the form of a social interaction problem and we illustrate how the implied sectoral linkages can be empirically explored using U.S. Census data. We find that sector‐level wages interact as implied by the model and that the predicted general equilibrium effects are present and substantial. We interpret our results as highlighting the relevance of search and bargaining theory for understanding the determination of wages, and we argue that the results provide support for the view that industrial composition is important for understanding wage outcomes.     

Minimum Wages as a Barrier to Entry: Evidence from Germany

This study analyses employers' support for the introduction of industry‐specific minimum wages as a cost‐raising strategy in order to deter market entry. Using a unique data set consisting of 800 firms in the German service sector, we show that high‐productivity employers support minimum wages. We further find some evidence that minimum wage support is higher in industries and regions with low barriers to entry. This is particularly the case in East Germany, where the perceived threat of low‐wage competition from Central and Eastern European countries is relatively high. In addition, firms paying collectively agreed wages are more strongly in favour of minimum wages.     

Wage Premium in the Industrial Sector of the Spanish Economy: Empirical Evidence

Abstract. This paper presents evidence that firm-level productivity increases when the relative wage rises, or the level of unemployment rises. Both facts are consistent with the efficiency wage model. Moreover, there is support for the idea that an increase in the sector's wage with respect to the previous year also increases productivity. We obtain the empirical evidence through a double-hurdle model. We use this estimation technique because it can be established that the differences in productivity between sectors could be explained by differences in effort. It means that some of the industrial sectors of the Spanish economy may pay wage premia while others do not. We also test this implication through panel data.     

Job Matching and the Wage Distribution

This paper brings together the microeconomic‐labor and the macroeconomic‐equilibrium views of matching in labor markets. We nest a job matching model à la Jovanovic (1984) into a Mortensen and Pissarides (1994)‐type equilibrium search environment. The resulting framework preserves the implications of job matching theory for worker turnover and wage dynamics, and it also allows for aggregation and general equilibrium analysis. We obtain two new equilibrium implications of job matching and search frictions for wage inequality. First, learning about match quality and worker turnover map Gaussian output noise into an ergodic wage distribution of empirically accurate shape: unimodal, skewed, with a Paretian right tail. Second, high idiosyncratic productivity risk hinders learning and sorting, and reduces wage inequality. The equilibrium solutions for the wage distribution and for the aggregate worker flows—quits to unemployment and to other jobs, displacements, hires—provide the likelihood function of the model in closed form.     

UNDERSTANDING THE EVOLUTION OF THE US WAGE DISTRIBUTION: A THEORETICAL ANALYSIS

In this paper, we propose an analytically tractable overlapping‐generations model of human capital accumulation and study its implications for the evolution of the US wage distribution from 1970 to 2000. The key feature of the model, and the only source of heterogeneity, is that individuals differ in their ability to accumulate human capital. Therefore, wage inequality results only from differences in human capital accumulation. We examine the response of this model to skill‐biased technical change (SBTC) theoretically. We show that in response to SBTC, the model generates behavior consistent with some prominent trends observed in the US data including (i) a rise in overall wage inequality both in the short run and long run, (ii) an initial fall in the education premium followed by a strong recovery, leading to a higher premium in the long run, (iii) the fact that most of this fall and rise takes place among younger workers, (iv) a rise in within‐group inequality, (v) stagnation in median wage growth (and a slowdown in aggregate labor productivity), and (vi) a rise in consumption inequality that is much smaller than the rise in wage inequality. These results suggest that the heterogeneity in the ability to accumulate human capital is an important feature for understanding the effects of SBTC and interpreting the transformation of the US labor markets since the 1970s.     

On the Dynamics of Unemployment and Wage Distributions

Postel‐Vinay and Robin's (2002) sequential auction model is extended to allow for aggregate productivity shocks. Workers exhibit permanent differences in ability while firms are identical. Negative aggregate productivity shocks induce job destruction by driving the surplus of matches with low ability workers to negative values. Endogenous job destruction coupled with worker heterogeneity thus provides a mechanism for amplifying productivity shocks that offers an original solution to the unemployment volatility puzzle (Shimer (2005)). Moreover, positive or negative shocks may lead employers and employees to renegotiate low wages up and high wages down when agents' individual surpluses become negative. The model delivers rich business cycle dynamics of wage distributions and explains why both low wages and high wages are more procyclical than wages in the middle of the distribution.     

WHICH SECTORS MAKE POOR COUNTRIES SO UNPRODUCTIVE?

Which sectors are most responsible for the low total factor productivities of developing countries? To answer this question we develop a new framework for sectoral development accounting. Applying this framework to the Penn World Table, we find that in equipment, construction, and food the sectoral TFP differences between developing countries and the United States are much larger than in the aggregate. However, in manufactured consumption the sectoral TFP differences are about equal to the aggregate TFP differences, and in services they are much smaller. We show that our level of disaggregation allows us to reconcile the results of existing studies of sectoral productivity differences, which have focused on noncomparable two‐sector decompositions of the aggregate data. We also show that our results help shed light on existing theories of aggregate TFP differences.     

Knowledge Spillovers and Wage Inequality: An Empirical Analysis of Dutch Manufacturing

The introduction of new technologies and technical change is associated mainly with high‐skilled and high‐wage workers. In addition, many studies have found a positive correlation between the introduction of new technologies and technical change and skill upgrading. In these studies no attention has been paid to spillovers from one sector to the other. In this paper we not only use measures of technical change but also knowledge spillovers to explain wage inequality in Dutch manufacturing in the period 1986–95. Using this more elaborate measure of technical change, our findings are twofold. First, we confirm that workers employed in knowledge‐intensive manufacturing sectors receive a higher wage than workers in less knowledge‐intensive sectors. Secondly, the wages paid to high‐skilled workers relative to low‐skilled workers in knowledge‐intensive sectors are higher than those in less knowledge‐intensive sectors. However, the coefficients using the elaborate measure of technological advancement are much lower and sometimes even insignificant. This suggests a premium for high‐skilled labour in sectors both applying and developing technology. But the wage premium is highest in technology‐developing sectors, as suggested by the measures used in previous studies.     

WHERE THE MINIMUM WAGE BITES HARD: INTRODUCTION OF MINIMUM WAGES TO A LOW WAGE SECTOR

Between 1993 and April 1999 there was no minimum wage in the United Kingdom (except in agriculture). In this paper we study the effects of the introduction of a National Minimum Wage (NMW) in April 1999 on one heavily affected sector, the residential care homes industry. This sector contains a large number of low paid workers and as such can be viewed as being very vulnerable to minimum wage legislation. We look at the impact on both wages and employment. Our results suggest that the minimum wage raised the wages of a large number of care home workers, causing a very big wage compression of the lower end of the wage distribution, thereby strongly reducing wage inequality. There is some evidence of employment and hours reductions after the minimum wage introduction, though the estimated effects are not that sizable given how heavily the wage structure was affected. (JEL: J4, J8)     

The Network Origins of Aggregate Fluctuations

This paper argues that, in the presence of intersectoral input–output linkages, microeconomic idiosyncratic shocks may lead to aggregate fluctuations. We show that, as the economy becomes more disaggregated, the rate at which aggregate volatility decays is determined by the structure of the network capturing such linkages. Our main results provide a characterization of this relationship in terms of the importance of different sectors as suppliers to their immediate customers, as well as their role as indirect suppliers to chains of downstream sectors. Such higher‐order interconnections capture the possibility of “cascade effects” whereby productivity shocks to a sector propagate not only to its immediate downstream customers, but also to the rest of the economy. Our results highlight that sizable aggregate volatility is obtained from sectoral idiosyncratic shocks only if there exists significant asymmetry in the roles that sectors play as suppliers to others, and that the “sparseness” of the input–output matrix is unrelated to the nature of aggregate fluctuations.     

The Role of Profit Sharing in Dual Labour Markets with Flexible Outsourcing

We combine profit sharing for high‐skilled workers and outsourcing of low‐skilled tasks in a partly imperfect dual domestic labour market, which means that only low‐skilled labour is represented by a labour union. In that framework we analyse how the implementation of profit sharing for high‐skilled workers influences the amount of outsourcing and the labour market outcome for low‐skilled worker. By doing this, we use some specific assumptions, e.g. exponentially increasing outsourcing costs or the wage for low‐skilled workers will be determined by a union whereas the wage for high‐skilled workers is given. Assuming that low‐skilled labour and outsourcing are interchangeable we show that profit sharing has a positive effect on the wage for low‐skilled workers and helps to decrease wage dispersion. However, under these circumstances, profit sharing enhances outsourcing. Concerning the employment effects for high‐ and low‐skilled workers, we show that there is an employment reducing effect due to higher wages for low‐skilled work, which can be offset by higher productivity of highly skilled workers, as the domestic labour inputs complement each other.     

Efficiency Wage,Fixed Employment Costs,and Dual Labour Markets

The standard efficiency wage‐based explanation of labour market dualism hinges on the existence of differences in monitoring across sectors. The paper proposes fixed employment costs as an alternative source of wage differentials for homogeneous workers. It shows that firms with larger fixed costs pay higher wages in order to elicit more effort from their workers, and tend to have higher capital/labour ratio and labour productivity. The model generates both involuntary unemployment and involuntary confinement in the secondary sector: high effort–high wage jobs are preferred to low effort–low wage jobs and either are preferred to unemployment. The proposed framework can also account for the various types of treatment of marginal jobs in primary sector firms envisaged by Doeringer and Piore (Internal Labour Markets and Manpower Analysis, 1971). In particular, an increase in fixed costs beyond a certain level may induce primary sector firms to restructure, segment production, and enter the secondary sector, thus converting their jobs into secondary jobs. From a welfare point of view, we cannot state in general the desirability of subsidizing fixed employment costs; however, we show that an employment subsidy financed by a wage tax is able to increase employment with no loss in terms of production.     

Wage Inequality of US Truck Drivers

Using CPS data for the period 1979–2009, the wage dispersion of truck drivers (and subsets of the truck driving sample) is compared with the trends in wage dispersion of males economy‐wide. We find that truckers' wages experienced a decrease in inequality post‐deregulation, as expected given the literature on regulation's impact on the labor market. We also find that the wage dispersion for truckers is markedly different from males economy‐wide, providing evidence that the wage distribution of truck drivers has been dominated by the changing structure of the occupation post‐deregulation and largely immune to the factors that increased inequality for the aggregate labor market.     

Wage and Productivity Differentials in Japan: The Role of Labor Market Mechanisms

This paper aims at explaining two stylized facts of the Lost Decade in Japan: rising wage inequalities and increasing firm‐level productivity differentials. We build a model where firms can choose between efficiency wages with endogenous effort and competitive wages, and show that it can replicate those facts. Using Japanese microeconomic data, we find support for the existence of efficiency wages in one group of firms and competitive wages in the other group. Based on those results, a simulation shows that the share of firms using efficiency wages has declined, within sectors, during the Lost Decade, as predicted by the model.     

Changes in Union Membership Over Time: A Panel Analysis for West Germany

Abstract. Despite the apparent stability of the wage bargaining institutions in West Germany, aggregate union membership has been declining dramatically since the early 1990s. However, aggregate gross membership numbers do not distinguish between employment status and it is impossible to disaggregate these sufficiently. This paper uses four waves of the German Socio‐economic Panel in 1985, 1989, 1993, and 1998 to perform a panel analysis of net union membership among employees. We estimate a correlated random‐effects probit model suggested by Chamberlain (Handbook of Econometrics, Vol. II, Amsterdam: Elsevier Science, 1984) to take proper account of individual‐specific effects. Our results suggest that at the individual level the propensity to be a union member has not changed considerably over time. Thus, the aggregate decline in membership is due to composition effects. We also use the estimates to predict net union density at the industry level based on the IAB employment subsample for the time period 1985–97.     

经济转型与不同所有制部门的工资决定——从“下海”到“下岗”

本文利用中国家庭营养健康调查数据(CHNS)考察了经济转型与不同所有制部门工资分布演变的关系。结果表明,尽管20世纪整个90年代都伴随着劳动力比重在公有部门的下降和在民营部门的上升,但是1997年之前和之后的两个时期存在着显著的差异:前一个时期主要是能力比较强的人选择离开国有部门,他们在民营部门也能够获得较高的收入;后一个时期则主要是原来工资和教育水平比较低的人从公有部门转移到民营部门,在民营部门内部,他们的工资也比其他劳动者低。这一结果可以帮助我们解释不同所有制部门工资方程的差异,尤其是教育回报率的不同:本文的回归结果表明1997年,民营部门的教育回报率高于公有部门,但是到了2000年,国有部门的教育回报率开始高于民营部门。     

Union–Firm Bargaining,Productivity Improvement and Endogenous Growth

This paper presents a growth model with two sectors. In the high‐tech sector, R&D increases productivity and union–firm bargaining determines wages, but in the traditional sector there are neither R&D nor labour unions. The government is able to regulate union bargaining power. The main results are as follows. Because firms try to escape wage increases through the improvement of productivity by R&D, the increase in union bargaining power boosts R&D and growth. It is welfare enhancing to strengthen (weaken) unions when the growth rate is below (above) some critical level. A specific rule is presented for when de‐unionization is socially desirable.     

The Motherhood Wage Penalty and Its Determinants: A Public–Private Comparison

We investigate whether public and private sector employees bear a different wage penalty for having children. According to our estimates, the total motherhood wage penalty is much larger in the private than in the public sector. Nevertheless, in both sectors, we find no unexplained penalty once we control for potential determinants of the family pay gap, namely, a reduced labour supply of mothers, child‐related career interruptions, less access to management positions, and adjustments in working conditions. Finally, only child‐related career interruptions play a different role in explaining the motherhood wage penalty in each sector.     

Industrialization,Productivity and the Shift to Services and Information

All major world economies are exhibiting a shift from products to services in terms of relative share of GNP and employment. A well accepted explanation for this shift to services has been the lower productivity growth in services relative to manufacturing. A second trend visible in the United States and other advanced economies is that from material‐intensive to information‐intensive sectors with the latter growing relative to the former. There does not seem to be a generally accepted explanation for this shift; in fact, here it would appear that productivity in information‐intensive sectors is increasing. We construct a model of an economy with endogenous production and consumption decisions by utility maximizing individuals. We show that differential productivity changes can result in either relative growth or decline of a sector. A second factor affecting the direction of change is the degree to which consumption of sector outputs approaches satiation. When marginal utility of additional consumption drops sufficiently low, productivity increases can lead to declines in the relative size and share of, and employment in the sector. Concurrently, increases in productivity increase average wealth as expected, but income inequality can either increase or decrease.