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.     

Wage Drift: Phillips Curve vs Bargaining Models

ABSTRACT: The purpose of this paper is to shed light on the debate on market- versus bargaining-determined total earnings by examining whether models of wage drift based on wage-bargaining considerations empirically outperform models based on simple ad hoc formulations relating wage drift to excess demand for labour. The task is carried out by investigating the empirical performance of two bargaining models and two Phillips curve models in the context of data on the Finnish metal industry. The results suggest that the former perform better than the latter, thus providing support for the hypothesis that total earnings are bargaining-determined. Furthermore, the results are in line with the view that the superiority of wage-bargaining models is not only theoretical but also empirical.     

Union–Firm Bargaining as a Repeated Game and the Behaviour of Wages over the Business Cycle

This paper studies a repeated game between a union and a firm in the presence of revenue fluctuations. The simple setup, mainly based on Schultz’s (1995) model, gives support to the idea that the existence of a long-term relationship may change the predictions of the static one-shot model of wage and employment determination in unionized labour markets. In particular, when revenue is fluctuating and the discount factor is moderate the players can commit themselves to some ‘second best’ strategies, rather than playing non-cooperative strategies. As a consequence of the enforcement problems a flat wage over the business cycle may arise. This analysis suggests that ‘second best’ strategies allowing for a pro-cyclical wage as well as for a counter-cyclical wage are feasible. However, when the discount factor decreases and approaches a certain threshold value the parties cannot do better than play a wage constant over the cycle. Moreover, the resulting wage varies less than the employment level, in accordance with the empirical evidence.     

Why Do People from Southern Italy Seek Jobs in the Public Sector?

This paper analyses the choice open to a worker seeking a job in the public and private sectors of the labour market. The private sector is identified by a steeper wage profile and by lower job security than the public sector. The reservation wage for the two sectors is calculated in the first part of the paper. The results reveal that the reservation wage for the public sector is higher than that for the private sector. The effect of career prospects, job riskiness and labour demand on optimal time allocation between the search in the two sectors is then analysed. Finally, an empirical analysis is made in order to study Italian workers’ search strategies. It highlights relevant geographical differences which can be interpreted through the theoretical results obtained in the paper.     

Wage Cuts as Investment in Future Wage Growth

Abstract. Wage cuts are often presumed to reflect an adverse change in economic constraints. However, several theoretical models have shown they can be a form of investment in future wage growth. This paper provides empirical evidence of the latter by explicitly modeling the worker's job choice when the job offer consists of both a starting wage and expected future wage growth. We use our analytical model to estimate the distribution of job offers faced by workers who are searching across jobs differing in both initial wage and expected wage growth. For females, roughly one‐third of job changes that result in immediate wage cuts are transitions to jobs that have a higher value function than the existing job. For males, the corresponding value is one‐fifth.     

Union Bargaining,Wage Differentials and Employment

Abstract. Reviewing empirical studies concerning the corporatism-flexibility-performance nexus the paper discusses decentralized and centralized bargaining systems. Revenue pay systems, concession bargaining and two-tier wage systems as means to enhance wage flexibility at the firm level are also considered. Both theoretical and empirical evidence is presented, showing that unions are bargaining for greater employment security for the already employed (the insiders). In return, unions are ready to accept greater wage flexibility and even wage decreases. By contrast, the insider-outsider theory does suggest how unions may accentuate involuntary unemployment, because there may be ways in which a union can help to raise the wages of the insiders without reducing their chances of continued employment.     

Profit Sharing and the Firm‐Size Wage Premium

This study analyzes the relationships among wages, firm size, and profit sharing schemes. We develop a simple theoretical model and explore the relationship empirically using high‐quality panel data. The theoretical model shows that the firm‐size wage premium decreases in the presence of profit sharing. The empirical results based on rich matched employee‐employer data for private sector wage earners in Finland show that the firm‐size wage premium is modest, and it becomes negligible when we account for profit sharing and covariates describing assortative matching and monopsony behavior. The analysis suggests that profit sharing schemes embody effects of firm‐specific unobservables that raise productivity, support rent sharing, and boost wages.     

Social Network and Wage: Evidence from Cameroon

Using Cameroonian data, this paper investigates the effects of social network on wage. Social network is measured in terms of using friends and relatives while looking for a job. In order to evaluate the effectiveness of social network with regard to wage, we make use of Heckman selection model. Our findings contrast with previous studies. After factoring the endogeneity and sample selection, we find that Job seekers who make use of social network exhibit a wage premium of 1.53 per cent of average wage. We also find that social network contributes to explain wage differential according to gender and institutional sectors (formal versus informal).     

Post-Divorce Transfers and the Welfare of Mothers and Children in the United States

ABSTRACT In this paper we analyze the relationship between post-divorce private transfers (child support and alimony), mothers' economic independence and children's welfare using US data. Our empirical results show that mothers who receive child support and alimony from absent fathers are more likely to work and to spend a higher proportion of the income on child-related goods. We argue that the pattern of empirical results is consistent with there being significant externalities between parents even after divorce.     

Employer Wage Differentials in Germany: A Comparative Note

The paper contributes to the growing empirical literature on employer wage differentials, presenting first estimates for West Germany and comparing them with recent findings from other studies for the USA, France and Denmark. The empirical results show that the variation of global employer wage differentials is comparatively low in West Germany and has remained stable during the first half of the 1990s. This low dispersion results from wage setting for blue‐collar workers, while cross‐country differences are negligible for white‐collar workers. Employer wage differentials have, however, become more important for the remuneration of West German blue‐collar workers during the period investigated.     

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.     

Is There a Motherhood Wage Penalty in the Finnish Private Sector?

This paper investigates the effects of children on women's wages in the Finnish private sector. The paper finds evidence of the motherhood wage penalty, the penalty varying with the length of the child‐related career break. Mothers staying at home no longer than for 2 years face considerably smaller penalties than mothers spending longer periods at home. The negative wage effects of children decrease, however, quickly with time. For example, mothers who experience a career break of 2 years or less do not lag behind non‐mothers in terms of wages after the second year from the return to employment. There is also variation in the motherhood wage penalty across the wage distribution. The penalty is higher at the top of the distribution than in the middle of it, especially in the cases of prolonged child‐related career breaks.     

Inept or Badly Matched? — Effects of Educational Mismatch in the Labor Market

Negative wage effects of educational mismatch have become a stylized fact. Whether these are explained by differences in unobserved productivity or poor matching is still to be answered conclusively. In an empirical analysis based on data from the German Socio‐Economic Panel and the International Adult Literacy Survey, a broad econometric strategy is applied to solve the problem of unobserved heterogeneity and reveal the mechanism underlying wage differences between matched and mismatched workers. Results show that wage differentials can be explained by a poor matching in the labor market, rejecting the hypothesis that mismatched workers compensate for unobserved productivity differences.     

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.     

The East German Wage Structure in the Transition to a Market Economy

ABSTRACT: An important question for the development of the East German labour market in the transition to a market economy is whether wage differentials by qualification, industry or region (which were relatively small in the former GDR) adjust to those in market economies which are more in line with differences in productivities and economic conditions. We estimate empirical earnings functions to quantify the contribution of various important factors shaping the earnings distribution in the East German transition process. Estimation is based on the first six waves of the Labour Market Monitor which is a representative panel data set of the East German working-age population covering the period 1990 to 1992. The specification of the estimated earnings functions is motivated by the various hypotheses of the development of the East German wage structure in the transformation process. Although we find some similarities with the existing wage structure in West Germany, the East German wage structure still differs in some important dimensions.     

THE RETURN OF THE WAGE PHILLIPS CURVE

The standard New Keynesian model with staggered wage setting is shown to imply a simple dynamic relation between wage inflation and unemployment. Under some assumptions, that relation takes a form similar to that found in empirical wage equations—starting from Phillips’ (1958) original work—and may thus be viewed as providing some theoretical foundations to the latter. The structural wage equation derived here is shown to account reasonably well for the comovement of wage inflation and the unemployment rate in the US economy, even under the strong assumption of a constant natural rate of unemployment.     

Paying More than Necessary? The Wage Cushion in Germany

In Germany, more than 40 per cent of plants covered by collective agreements pay wages above the level stipulated in the agreement, giving rise to a wage cushion between actual and contractual wages. Cross‐sectional and fixed‐effects estimations indicate that the wage cushion mainly varies with the profit situation of the plant and with indicators of labour shortage and the business cycle. Whereas plants bound by multi‐employer agreements seem to pay wage premiums in order to overcome the restrictions imposed by the rather centralized bargaining system in (western) Germany, plants that use single‐employer agreements are significantly less likely to have wage cushions.     

Wage Inflation and Unemployment in Britain and America 1892–1991

This paper examines the stability of the wage inflation process in Britain and America from 1892 to 1991. Utilizing a simple model of the aggregate labor market that treats wage inflation and the annual change in the unemployment rate as jointly endogenous variables, we find no evidence of substantial parameter shifts. In particular, there is no evidence of a secular increase in wage rigidity in either country nor is there support for the notion that periods of persistently high unemployment, such as the 1930s or the 1980s, are characterized by significant increases in wage rigidity. Our results are consistent with the findings of several other studies and indicate that wage rigidity has been a stable characteristic of labor markets since the end of the 19th century. Our results also suggest that the unemployment performance of these two countries over time can be explained by the interaction of demand shocks and wage rigidity.     

Does Immigration Raise Blue and White Collar Wages of Natives? The Case of Italy

This paper analyses both theoretically and empirically the effects of immigration on the wage rate of native workers. There is rare evidence in empirical literature that immigration generates a fall in the wages of manual workers. By hypothesizing an economic system where advanced firms buy an intermediate good from traditional firms, which employ manual workers in both clean and dirty tasks, the latter being more disliked by native workers, we present a theoretical model that justifies these results. We conclude that native skilled wages always increase whereas native unskilled wages can both increase or decrease with immigration. An empirical analysis of the Italian labour market follows, showing that native workers' wages always rise with immigration.