Wage Flexibility for Skilled and Unskilled Workers: New Evidence on the Norwegian Wage Curve

Empirical evidence is provided in favour of a hypothesis that wages for unskilled workers are more responsive to unemployment than wages for skilled workers. The results imply vigorous wage responsiveness to low levels of unemployment for both groups, while the wage curves become almost entirely flat for unemployment rates above 1.7 percent. One interpretation of this result is that firms have strong incentives to increase wages in order to recruit and retain workers when unemployment is below some critical level. Since unemployed workers will certainly find work, the expected costs of a job loss are small, as are costs associated with an egalitarian wage policy.     

The Skilled Wage Premium and the Growth of Small Firms in UK Manufacturing

We document the role of small firms in explaining the growth of the skilled/unskilled wage premium in UK manufacturing over the 1980s. Our major findings are (i) the share of manufacturing employment in small firms' (0–99) employees has risen by 35 percent over this period; (ii) small firms pay more unequal wages than do large firms: the non-manual/manual wage premium is 1.53 in small firms and 1.50 in firms of over 1,500 workers; (iii) the growth in small firms over the period explains about 20 percent of the rise in the skilled/unskilled wage premium.     

Standard of Living as a Right,Not a Privilege: Is It Time to Change the Dialogue from Minimum Wage to Living Wage?

Dating back to the 1930s, President Franklin D. Roosevelt argued that workers were entitled to a wage that allowed them to enjoy a decent standard of living—a conviction that led the president to propose the first federally‐mandated minimum wage. Mr. Roosevelt’s proposal was met with highly partisan resistance in congress and the courts—reactions not different in kind from the highly partisan resistance former President Obama experienced in his proposal to increase the federal minimum wage from its current level of $7.25 per hour. Reflecting President Roosevelt’s convictions, it is clear that many low wage workers today are not, and cannot, enjoying a decent standard of living at current minimum wage levels. Further, many of the economic arguments raised in opposition to increasing the minimum wage have been thoroughly discredited: empirical evidence suggests that increased minimum wages would not lead to dramatic spikes in unemployment, massive substitutions of capital for labor, business closings, and significantly increased consumer prices. However, as compelling as arguments for increasing the minimum wage may be, the reality is that this may not be sufficient to alleviate the plight of low income workers, particularly given the political nature of minimum wage adjustments. Indeed, it may be time to shift the national focus away from the minimum wage to an emphasis on viable living wage legislation, a proposition consistent with the social justice perspective of contemporary ethicists.     

The Impact on Inequality of Raising the Minimum Wage: Gap‐narrowing and Reranking Effects

Raising the minimum wage may reduce inequality by increasing the wages of low‐skill workers, but it may also increase inequality due to negative impacts on employment that produce wage losses. Using previous estimates of the elasticities of wages and employment to changes in the minimum wage in Colombia and Brazil, we show that the net impact on inequality of increasing the minimum wage may depend on the distributional weights used for inequality measurement. The results are obtained by decomposing the Gini index into reranking and gap‐narrowing effects. Inequality‐increasing reranking effects, which are associated with job losses, may dominate inequality‐decreasing gap‐narrowing effects, which are associated with wage gains, when high weights are placed on workers with low earnings. For standard distributional weights, however, the likely net impact is a reduction in wage inequality.     

Immigration and Occupational Crowding in the United States

ABSTRACT: The 1990 National Longitudinal Survey of Youth is utilized to explore the effects that the occupational crowding of immigrants has on the real wages of indigenous and non-US citizen workers already in the United States. Findings include adverse wage effects as a result of the crowding of immigrants on the following worker categories: (1) indigenous, unskilled, white or black workers and (2) non-US citizen, skilled or unskilled black workers. Foreign-born, skilled, and white workers already in the US realize a positive effect on their real wages as a result of having a large relative number of non-US citizens in their occupations.     

Temporary/Permanent Workers' Wage Gap: A Brand‐new Form of Wage Inequality?

By easing restrictions on the use of short‐term contracts, the 30/2003 act represents contemporaneously the more extensive and the more radical policy aimed at introducing flexibility in the Italian labour market. By virtue of a difference‐in‐differences estimator, the paper provides an estimate of the impact of the 30/2003 reform on the wage gap across fixed‐term and long‐term employees. It will be given evidence that the policy has widened the wage differentials and the effect is particularly stronger to skilled workers compared with unskilled workers. These findings would suggest the existence of a possible brand‐new form of wage inequality.     

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.     

DISENTANGLING THE MINIMUM WAGE PUZZLE: AN ANALYSIS OF WORKER ACCESSIONS AND SEPARATIONS

Changes in the legislation in the mid‐1980s in Portugal provide remarkably good conditions for analysis of the employment effects of mandatory minimum wages, as the minimum wage increased sharply for a very specific group of workers. Relying on a matched employer‐employee panel data set, we model gross worker flows—accessions and separations—in continuing firms, as well as in new firms and those going out of business, using a count regression model applied to proportions. Employment trends for teenagers, the affected group, are contrasted to those of older workers before and after the raise in the youth minimum wage. The major effect on teenagers of a rising minimum wage has been the reduction of separations from the employer, which, during the period under analysis, has compensated for the reduction of accessions to new and continuing firms. In this sense, our results can reconcile some of the previous evidence in the empirical literature when analyzing the aggregate impact of the minimum wage on youth employment without decomposing it by type of worker flow. (JEL: D21, J23, J38)     

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)     

DO WAGE CUTS DAMAGE WORK MORALE? EVIDENCE FROM A NATURAL FIELD EXPERIMENT

Employment contracts are often incomplete, leaving many responsibilities subject to workers' discretion. High work morale is therefore essential for sustaining voluntary cooperation and high productivity in firms. We conducted a field experiment to test whether workers reciprocate wage cuts and raises with low or high work productivity. Wage cuts had a detrimental and persistent impact on productivity, reducing average output by more than 20%. An equivalent wage increase, however, did not result in any productivity gains. The results from an additional control experiment with high monetary performance incentives demonstrate that workers could still produce substantially more output, leaving enough room for positive reactions. Altogether, these results provide evidence consistent with a model of reciprocity, as opposed to inequality aversion.     

Impact of the Minimum Wage on Youth Labor Markets

We study the effect of the minimum wage on labor market outcomes for young workers using US county‐level panel data from the first quarter of 2000 to the first quarter of 2009. We go beyond the usual estimates of earnings and employment effects to consider how differences across states in the minimum wage affect worker turnover via separations and accessions and job turnover through new job creation and job losses. We find that a higher minimum wage level is associated with higher earnings, lower employment and reduced worker turnover for those in the 14–18 age group. For workers aged 19–21 and 22–24, we find less consistent evidence of minimum wage effects on earnings and employment. But, even for these age groups, a higher minimum wage is found to reduce accessions, separations and the turnover rate.     

How Selective Are Real Wage Cuts? A Micro‐analysis Using Linked Employer–Employee Data

Using linked employer–employee panel data for Germany, we investigate whether firms implement real wage reductions in a selective manner. In line with insider–outsider and several strands of efficiency wage theory, we find strong evidence for selective wage cuts with high‐productivity workers being spared even when controlling for permanent differences in firms' wage policies. In contrast to some recent contributions stressing fairness considerations, we also find that wage cuts increase wage dispersion among peers rather than narrowing it. Notably, the same selectivity pattern shows up when restricting our analysis to firms covered by collective agreements or having a works council.     

Careers and productivity in an internal labor market

This paper contributes to the existing literature by evaluating the effects of age and tenure on careers and productivity within an internal labor market. We use the administrative personnel records of a long balanced panel of blue-collar workers from a manufacturing firm in Germany with a distinct classification of wage groups and unique information on workers’ productivity in form of suggestions for productivity improvement. Using robust locally weighted regression, our main findings suggest that the probability of promotion is highest for younger workers and early in the career. Older workers are less likely to be promoted. The likelihood of making a rewarded suggestion is inversely u-shaped with respect to tenure and age. Furthermore, workers’ ability and firm-specific human capital determine the workers’ careers and productivity.     

The Effects of Gain Sharing on the Basic Wage: The Case of IMPROSHARE

Although gain-sharing plans are typically promoted to workers as a way of increasing total compensation, workers are often concerned that gain-sharing bonuses may become substitutes for future wage increases that would have occurred in the absence of the plan. I examine the theoretical and empirical interaction among wages, bonuses, effort, and productivity in firms that implemented IMPROSHARE, a well-known gain-sharing plan. Using longitudinal data obtained from a detailed survey questionnaire, I find that one can usually reject both the perfectly competitive model in which effort is held constant (in which case bonuses are a perfect substitute for wages) and the “pure gravy” model (in which bonuses completely complement the wage rate). There is no evidence that higher bonuses lead to higher relative wages. The results, however, are not very robust. Although the net effect of the bonuses on the wage rate is usually negative, it is not always statistically significant.     

Minimum Wages and Trainers' Dilemma

This paper examines how a minimum wage, viewed as an incentive to trainers, would affect the informal help provided through on‐the‐job training. In the work environment, experienced employees play a significant role in training new employees. However, the more help they provide to trainees, the less likely that the trainers themselves will be promoted. This is the trainer's dilemma: help trainees or work for promotion. We show that a minimum wage alleviates the trainer's dilemma, as it increases the earnings of non‐promoted workers and reduces the net benefit of promotion for experienced employees. Hence, minimum wage regulation encourages informal help and enhances welfare, although it reduces the firm's profit.     

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.     

DOES EMPLOYMENT PROTECTION CREATE ITS OWN POLITICAL SUPPORT?

This paper investigates the ability of employment protection to generate its own political support. A version of the Mortensen–Pissarides model is used for this purpose. If wages are set through Nash bargaining, workers value employment protection because it strengthens their hand in wage negotiations. Workers in high productivity matches benefit most from higher wages as they expect to stay employed for longer. By reducing turnover employment protection shifts the distribution of match‐specific productivity toward lower values. Thus stringent protection in the past actually reduces support for employment protection today. Introducing involuntary separations reverses this conclusion. Now workers value employment protection because it delays involuntary dismissals. Workers in low productivity matches gain most since they face the highest risk of dismissal. The downward shift in the productivity distribution is now a shift towards supporters.     

Minimum wage and food prices: an analysis of price pass-through effects

An Input-Output model is used to analyze price pass-through effects of a minimum wage increase on prices of the food and kindred product and food-service industry. Although these sectors employ a disproportionate share of minimum wage workers, our results suggest a $0.50 increase in the minimum wage would minimally affect food prices.     

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.     

Wage Bargaining with On‐the‐Job Search: Theory and Evidence

Most applications of Nash bargaining over wages ignore between‐employer competition for labor services and attribute all of the workers' rent to their bargaining power. In this paper, we write and estimate an equilibrium model with strategic wage bargaining and on‐the‐job search and use it to take another look at the determinants of wages in France. There are three essential determinants of wages in our model: productivity, competition between employers resulting from on‐the‐job search, and the workers' bargaining power. We find that between‐firm competition matters a lot in the determination of wages, because it is quantitatively more important than wage bargaining à la Nash in raising wages above the workers' “reservation wages,” defined as out‐of‐work income. In particular, we detect no significant bargaining power for intermediate‐ and low‐skilled workers, and a modestly positive bargaining power for high‐skilled workers.