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Ehrlich, Gabriel & Joshua Montes (2024): Wage Rigidity and Employment Outcomes: Evidence from Administrative Data. In: American Economic Journal. Macroeconomics, Jg. 16, H. 1, S. 147-206. DOI:10.1257/mac.20200125

Abstract

"This paper examines the relationship between downward nominal wage rigidity and employment outcomes using linked employer-employee data. Wage rigidity prevents 27.1 percent of counterfactual wage cuts, with a standard deviation of 19.2 percent across establishments. An establishment with the sample-average level of wage rigidity is predicted to have a 3.3 percentage point higher layoff rate, a 7.4 percentage point lower quit rate, and a 2.0 percentage point lower hire rate. Estimating a structural model by indirect inference implies that the cost of a nominal wage cut is 33 percent of an average worker’s annual compensation. (JEL E24, J23, J31, J63, M51)" (Author's abstract, IAB-Doku) ((en))

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Minni, Virginia (2024): Global managers, local workers: Wage setting inside a multinational firm. (CEP discussion paper / Centre for Economic Performance 1975), London, 18 S.

Abstract

"How are wages set within a multinational firm? Combining cross-country data on wages and labor regulations with personnel records of a large multinational firm, I find that wage setting depends on the rank of the employee in the firm hierarchy. For managers, wages are set by the headquarters regardless of local labor market conditions. For factory workers, wages are adjusted according to country-specific wages and labor regulations. These results suggest that the multinational’s internal labor market shields managers against changes in external market conditions, while the firm adapts to local labor markets for factory workers." (Author's abstract, IAB-Doku) ((en))

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Snell, Andy, Heiko Stüber & Jonathan P. Thomas (2024): Job security, asymmetric information, and wage rigidity. In: European Economic Review, Jg. 161, 2023-10-23. DOI:10.1016/j.euroecorev.2023.104622

Abstract

"We consider a labor market with risk averse workers, directed search and asymmetric information in which firms can commit to wage contracts but not to retain workers. The model predicts that in downturns (i) there is equal treatment of incumbents and new hires, (ii) wages are insensitive to the severity of the downturn, (iii) this leads to an amplified employment effect, and (iv) wages are determined by forecasts of labor market conditions rather than actual values. By contrast in upswings, new-hire wages are more attuned to actual conditions than forecasts, whilst incumbent wages remain relatively rigid. We find that these novel predictions are well supported in German administrative data." (Author's abstract, IAB-Doku, © Elsevier) ((en))

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Andersen, Soren Kaj, Chris F. Wright & Russell D. Lansbury (2023): Defining the problem of low wage growth in Australia and Denmark: From the actors' perspectives. In: European journal of industrial relations, Jg. 29, H. 2, S. 177-194. DOI:10.1177/09596801221132424

Abstract

"Low wage growth is a challenge common to many OECD countries including countries with very different institutional systems. This paper utilises and extends Rochefort and Cobb’s (1993) ‘problem definition’ framework to analyse how employer and union representatives in Australia and Denmark explain the causes of low wage growth. Drawing on elite interviews, which allow us to assess the nuance of actors’ perceptions, we find disagreement among Australian actors about the role of the collective bargaining system in contributing to low wage growth. Despite disagreement over the extent of the low wage growth problem in Denmark, both unions and employers expressed confidence in the ability of the bargaining system to resolve it. We argue that the greater degree of consensus in Denmark compared with Australia reflects differences in national institutional systems and knowledge regimes, which have influenced the ways actors in these countries perceive low wage growth." (Author's abstract, IAB-Doku) ((en))

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Arabzadeh, Hamzeh, Almut Balleer, Britta Gehrke & Ahmet Ali Taskin (2023): Minimum Wages, Wage Dispersion and Financial Constraints in Firms. (IZA discussion paper / Forschungsinstitut zur Zukunft der Arbeit 16455), Bonn, 56 S.

Abstract

"This paper studies how minimum wages affect the wage distribution if firms face financial constraints. Using German employer-employee data and firm balance sheets, we document that the within-firm wage dispersion decreases more with higher minimum wages when firms are financially constrained. We introduce financial frictions into a search and matching labor market model with stochastic job matching, imperfect information, and endogenous effort. In line with the empirical literature, the model predicts that a higher minimum wage reduces hirings and separations. Firms become more selective such that their employment and wage dispersion fall. If effort increases strongly, firms may increase employment at the expense of higher wage dispersion. Financially constrained firms are more selective and reward effort less. As a result, within-firm wage dispersion and employment in these firms fall more with the minimum wage." (Author's abstract, IAB-Doku) ((en))

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Bellmann, Lutz, Christian Dustmann, Martin Biewen, Bernardo Fanfani, Michael Oberfichtner, Bernd Fitzenberger, Sydnee Caldwell, Kerstin Ostermann, Alexandra Spitz-Oener & Steffen Müller; Christian Dustmann, Martin Biewen, Bernardo Fanfani, Michael Oberfichtner, Bernd Fitzenberger, Sydnee Caldwell, Kerstin Ostermann, Alexandra Spitz-Oener & Steffen Müller (sonst. bet. Pers.) (2023): Recent Developments in the Distribution of Labour Income and Skills. In: IAB-Forum H. 15.12.2023 Nürnberg. DOI:10.48720/IAB.FOO.20231215.02

Abstract

"Contributing to a better understanding of wage determination and wage distribution as well as job skills – that was the aim of the international conference “Recent Developments in Wage Determination, Distribution, and Job Skills” at the IAB." (Author's abstract, IAB-Doku) ((en))

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Bellmann, Lutz, Christian Dustmann, Martin Biewen, Bernardo Fanfani, Michael Oberfichtner, Bernd Fitzenberger, Sydnee Caldwell, Kerstin Ostermann, Alexandra Spitz-Oener & Steffen Müller; Christian Dustmann, Martin Biewen, Bernardo Fanfani, Michael Oberfichtner, Bernd Fitzenberger, Sydnee Caldwell, Kerstin Ostermann, Alexandra Spitz-Oener & Steffen Müller (sonst. bet. Pers.) (2023): Aktuelle Entwicklungen bei der Verteilung der Arbeitseinkommen und Kompetenzen (Podium). In: IAB-Forum H. 30.10.2023 Nürnberg. DOI:10.48720/IAB.FOO.20231030.01

Abstract

"Zu einem besseren Verständnis der Lohnfindung und Lohnverteilung sowie der beruflichen Qualifikationen beizutragen – das war das Ziel der internationalen Konferenz „Recent Developments in Wage Determination, Distribution, and Job Skills“ am IAB." (Autorenreferat, IAB-Doku)

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Blien, Uwe, Jan Mutl, Van Phan thi Hong & Katja Wolf (2023): Wage reactions to regional and national unemployment. In: Regional Science Policy & Practice, Jg. online first accepted manuscript, S. 1-11., 2023-05-02. DOI:10.1111/rsp3.12675

Abstract

"This paper analyses the entire wage effects of unemployment for an especially long observation period. In a three-step approach, the wage reaction at national level (wage setting curve or aggregate wage equation) is added to the reaction at regional level (wage curve). Spatial models with instrumental variables are used." (Author's abstract, IAB-Doku, © Wiley) ((en))

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Borjas, George J. (2023): Labor economics. New York: MacGraw-Hill, 494 S.

Abstract

"Labor Economics, ninth edition by George J. Borjas provides a modern introduction to labor economics, surveying the field with an emphasis on both theory and facts. Labor Economics is thoroughly integrated with the adaptive digital tools available in McGraw-Hill’s Connect, proven to increase student engagement and success in the course. All new Data Explorer questions using data simulation to help students grasp concepts Materials are fresh and up to date by introducing and discussing the latest research studies where conceptual or empirical contributions have increased our understanding of the labor market. The book has undergone Diversity, Equity, and Inclusion reviews to implement content around topics including generalizations and stereotypes, gender, abilities/disabilities, race/ethnicity, sexual orientation, diversity of names, and age." (Author's abstract, IAB-Doku) ((en))

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Broer, Tobias, Karl Harmenberg, Per Krusell & Erik Öberg (2023): Macroeconomic Dynamics with Rigid Wage Contracts. In: The American economic review. Insights, Jg. 5, H. 1, S. 55-72. DOI:10.1257/aeri.20210672

Abstract

"We adapt the wage contracting structure in Chari (1983) to a dynamic, balanced-growth setting with recontracting as in Calvo (1983). The resulting wage-rigidity framework dampens income effects in the short run, thus allowing significant responses of hours to aggregate shocks. In reduced form, the model dynamics are similar to that in Jaimovich and Rebelo (2009), with their habit parameter replaced by our probability of wage-contract resetting. That is, if wage contracts are reset frequently, labor supply behaves in accordance with King, Plosser, and Rebelo (1988) preferences, whereas if they are never reset, we obtain the setting in Greenwood, Hercowitz, and Huffman (1988)." (Author's abstract, IAB-Doku) ((en))

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Cairó, Isabel, Hess T. Chung, Francesco Ferrante, Cristina Fuentes-Albero, Camilo Morales-Jimenez & Damjan Pfajfar (2023): Endogenous Labor Supply in an Estimated New-Keynesian Model: Nominal versus Real Rigidities. (Finance and economics discussion series / Federal Reserve Board, Washington 2023-069), Washington, DC, 57 S.

Abstract

"The deep deterioration in the labor market during the Great Recession, the subsequent slow recovery, and the missing disinflation are hard to reconcile for standard macroeconomic models. We develop and estimate a New-Keynesian model with financial frictions, search and matching frictions in the labor market, and endogenous intensive and extensive labor supply decisions. We conclude that the estimated combination of the low degree of nominal wage rigidities and high degree of real wage rigidities, together with the small role of pre-match costs relative to post-match costs, are key in successfully forecasting the slow recovery in unemployment and the missing disinflation in the aftermath of the Great Recession. We find that endogenous labor supply data are very informative about the relative degree of nominal and real wage rigidities and the slope of the Phillips curve. We also find that none of the model-based labor market gaps are a sufficient statistic of labor market slack, but all contain relevant information about the state of the economy summarized in a new indicator for labor market slack we put forward." (Author's abstract, IAB-Doku) ((en))

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Davis, Steven J. & Pawel M. Krolikowski (2023): Sticky Wages on the Layoff Margin. (IZA discussion paper / Forschungsinstitut zur Zukunft der Arbeit 16351), Bonn, 57 S.

Abstract

"We design and field an innovative survey of unemployment insurance (UI) recipients that yields new insights about wage stickiness on the layoff margin. Most UI recipients express a willingness to accept wage cuts of 5-10 percent to save their jobs, and one third would accept a 25 percent cut. Yet worker-employer discussions about cuts in pay, benefits or hours in lieu of layoffs are exceedingly rare. When asked why employers don't propose job-saving pay cuts, four-in-ten UI recipients don't know. Sixteen percent say cuts would undermine morale or lead the best workers to quit, and 39 percent don't think wage cuts would save their jobs. For lost union jobs, 45 percent say contractual restrictions prevent wage cuts. Among those on permanent layoff who reject our hypothetical pay cuts, half say they have better outside options, and 38 percent regard the proposed pay cut as insulting. An estimated one-quarter of the layoffs violate the condition for bilaterally efficient separations that holds in leading theories of job separations, frictional unemployment, and job ladders. We draw on our findings and other evidence to assess theories of wage stickiness and its role in layoffs." (Author's abstract, IAB-Doku) ((en))

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Elsby, Michael, Axel Gottfries, Pawel Krolikowski & Gary Solon (2023): Wage Adjustment in Efficient Long-Term Employment Relationships. (Working paper / Federal Reserve Bank of Cleveland 23-23), Cleveland, OH, 45 S. DOI:10.26509/frbc-wp-202323

Abstract

"We present a model in which efficient long-term employment relationships are sustained by wage adjustments prompted by shocks to idiosyncratic productivity and the arrival of outside job offers. In accordance with casual and formal evidence, these wage adjustments occur only sporadically, due to the presence of renegotiation costs. The model is amenable to analytical solution and yields new insights into a number of labor market phenomena, including: (1) key features of the empirical distributions of changes in pay among job stayers; (2) a property of near-“memorylessness” in wage dynamics that implies that initial hiring wages have only limited influence on later wages and allocation decisions; and (3) a crucial role for nonbase pay—specifically, recruitment and retention bonuses—in sustaining efficient employment relationships." (Author's abstract, IAB-Doku) ((en))

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Gaur, Meghana, John Grigsby, Jonathon Hazell & Abdoulaye Ndiaye (2023): Bonus Question: Does Flexible Incentive Pay Dampen Unemployment Dynamics? (IZA discussion paper / Forschungsinstitut zur Zukunft der Arbeit 16481), Bonn, 86 S.

Abstract

"We introduce dynamic incentive contracts into a model of unemployment dynamics and present three results. First, wage cyclicality from incentives does not dampen unemployment dynamics: the response of unemployment to shocks is first-order equivalent in an economy with flexible incentive pay and without bargaining, vis-a-vis an economy with rigid wages. Second, wage cyclicality from bargaining dampens unemployment dynamics through the standard mechanism. Third, our calibrated model suggests 46% of wage cyclicality in the data arises from incentives. A standard model without incentives calibrated to weakly procyclical wages, matches unemployment dynamics in our incentive pay model calibrated to strongly procyclical wages." (Author's abstract, IAB-Doku) ((en))

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Hazell, Jonathon & Bledi Taska (2023): Downward Rigidity in the Wage for New Hires. (IZA discussion paper / Forschungsinstitut zur Zukunft der Arbeit 16512), Bonn, 79 S.

Abstract

"Wage rigidity is an important explanation for unemployment fluctuations. In benchmark models wages for new hires are key, but there is limited evidence on this margin. We use wages posted on vacancies, with job and establishment information, to measure the wage for new hires. We show that our measure of the wage for new hires is rigid downward and flexible upward, in two steps. First, wages change infrequently at the job level, and fall especially rarely. Second, wages do not respond to rises in unemployment, but respond strongly to falls in unemployment. Job information is crucial for detecting downward rigidity." (Author's abstract, IAB-Doku) ((en))

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Lesch, Hagen & Lennart Eckle (2023): Lohnentwicklung und Lohnstauchung im Öffentlichen Dienst. (IW-Kurzberichte / Institut der Deutschen Wirtschaft Köln 2023,88), Köln, 3 S.

Abstract

"Nachdem im April 2023 bereits ein Tarifergebnis für die Beschäftigten des öffentlichen Dienstes des Bundes und der Kommunen erreicht wurde, finden aktuell Tarifverhandlungen für die Beschäftigten der Länder statt. Die Gewerkschaften fordern 10,5 Prozent mehr Lohn, mindestens aber 500 Euro. Setzen sie dies durch, würde die ohnehin schon stark komprimierte Lohnstruktur weiter gestaucht." (Autorenreferat, IAB-Doku)

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Massenkoff, Maxim & Nathan Wilmers (2023): Wage Stagnation and the Decline of Standardized Pay Rates, 1974-1991. In: American Economic Journal. Applied Economics, Jg. 15, H. 1, S. 474-507. DOI:10.1257/app.20200819

Abstract

"Using new establishment-by-occupation microdata, we show that the use of discretionary wage setting significantly expanded in the 1970s and 1980s. Increasingly, wages for blue-collar workers were not standardized by job title or seniority but instead subject to managerial discretion. When establishments abandoned standardized pay rates, wages fell, particularly for the lowest-paid workers in a job and for those in establishments that previously paid above market rates. This shift away from standardized pay rates, in context of a broader decline in worker bargaining power, accelerated the decline in real wages experienced by blue-collar workers in the 1980s." (Author's abstract, IAB-Doku) ((en))

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Moramarco, Domenico (2023): Fairness and Gini decomposition. In: Economics Letters, Jg. 233. DOI:10.1016/j.econlet.2023.111409

Abstract

"We propose a new decomposition of the Gini coefficient that nests a structuralist and an individualistic definition of unfair inequality, as well as ex ante and ex post measures of inequality of opportunity. We illustrate the decomposition on Belgian data, highlighting the source of a consistent difference between these views about unfair inequality." (Author's abstract, IAB-Doku, © 2024 Elsevier) ((en))

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Ngai, L. Rachel & Orhun Sevinc (2023): A Multisector Perspective on Wage Stagnation. (IZA discussion paper / Forschungsinstitut zur Zukunft der Arbeit 16356), Bonn, 36 S.

Abstract

"Low-skilled workers are concentrated in sectors that experience fast productivity growth and yet their real wages have been stagnating. We document evidence from the U.S. to show the importance of sectoral reallocations. Key to our two-sector model is the fall in the relative price of the low-skill intensive sector caused by faster productivity growth. When outputs are complements across sectors, this leads to a reallocation of low-skilled workers to the high-skill intensive sector where their marginal product is stagnant. We show that this mechanism is quantitatively important for the stagnation of low-skill real wages and their divergence from aggregate labor productivity during 1980-2010." (Author's abstract, IAB-Doku) ((en))

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Rudanko, Leena (2023): Firm Wages in a Frictional Labor Market. In: American Economic Journal. Macroeconomics, Jg. 15, H. 1, S. 517-550. DOI:10.1257/mac.20200440

Abstract

"This paper studies wage setting in a directed search model of multiworker firms facing within-firm equity constraints on wages. The constraints reduce wages, as firms exploit their monopsony power over their existing workers, rendering wages less responsive to productivity in doing so. They also give rise to a time inconsistency in the dynamic firm problem, as firms face a less elastic labor supply in the short run than in the long run, making commitment to future wages valuable. Constrained firms find it profitable to fix wages, and doing so is good for worker welfare and resource allocation in equilibrium." (Author's abstract, IAB-Doku) ((en))

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Bils, Mark, Yongsung Chang & Sun-Bin Kim (2022): How Sticky Wages in Existing Jobs Can Affect Hiring. In: American Economic Journal. Macroeconomics, Jg. 14, H. 1, S. 1-37. DOI:10.1257/mac.20190338

Abstract

"We consider a matching model of employment with flexible wages for new hires but sticky wages within matches. Unlike most models of sticky wages, we allow effort to respond if wages are too high or too low. In the Mortensen-Pissarides model, employment is not affected by wage stickiness in existing matches. But it is in our model. If wages of matched workers are stuck too high, firms require more effort, lowering the value of additional labor and reducing hiring. We find that effort's response can greatly increase wage inertia." (Author's abstract, IAB-Doku) ((en))

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Caporale, Guglielmo Maria & Luis A. Gil-Alana (2022): Nominal and Real Wages in the UK, 1750 - 2015. Mean Reversion, Persistence and Structural Breaks. (CESifo working paper 10018), München, 14 S.

Abstract

"This paper analyses the stochastic properties of UK nominal and real wages over the period 1750-2015 using fractional integration techniques. Both the original series and logged ones are analysed. The results generally suggest that nominal wages exhibit a higher degree of persistence, which reflects relatively long lags between inflation and wage adjustments. Endogenous break tests are also carried out and various structural breaks are identified in both series. On the whole the corresponding subsample estimates imply an increase over time in the degree of persistence of both series." (Author's abstract, IAB-Doku) ((en))

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Card, David (2022): Who Set Your Wage? In: The American economic review, Jg. 112, H. 4, S. 1075-1090. DOI:10.1257/aer.112.4.1075

Abstract

"I discuss the recent literature that has led to new interest in the idea of monopsonistic wage setting. Building on advances in search theory and in models of differentiated products, researchers have used a number of different strategies to identify the elasticity of firm-specific labor supply. A growing consensus is that firms have some wage-setting power, though many questions remain about the sources of that power." (Author's abstract, IAB-Doku) ((en))

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Carlsson, Mikael & Andreas Westermark (2022): Endogenous Separations, Wage Rigidities, and Unemployment Volatility. In: American Economic Journal. Macroeconomics, Jg. 14, H. 1, S. 332-354. DOI:10.1257/mac.20180314

Abstract

"We show that in microdata, as well as in a search and matching model with flexible wages for new hires, wage rigidities of incumbent workers have substantial effects on separations and unemployment volatility. Allowing for an empirically relevant degree of wage rigidities for incumbent workers drives unemployment volatility as well as the volatility of vacancies and tightness to that in the data. Thus, the degree of wage rigidity for newly hired workers is not a sufficient statistic for determining the effect of wage rigidities on macroeconomic outcomes. This finding affects the interpretation of a large empirical literature on wage rigidities." (Author's abstract, IAB-Doku) ((en))

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Funk, Anne Kathrin & Daniel Kaufmann (2022): Do Sticky Wages Matter? New Evidence from Matched Firm Survey and Register Data. In: Economica, Jg. 89, H. 355, S. 689-712. DOI:10.1111/ecca.12412

Abstract

"We study the causal effects of downward nominal wage rigidity after a deflationary monetary policy shock using Swiss data on employee-level contractual wages matched with income and employment from social security register data. We exploit the discontinuity around the origin of the wage growth distribution to compare the outcomes of individuals with wage freezes (treatment group) and small wage cuts (control group) before and after an unexpected decision by the Swiss National Bank leading to a 1% decline of the price level. Locally (that is, near the origin of the wage growth distribution), downward nominal wage rigidities cause a 4.4% decline in income and a 0.7 percentage point increase in the probability of unemployment. In the aggregate, income declines by 0.3% and the probability of unemployment increases by 0.05 percentage points." (Author's abstract, IAB-Doku, Published by arrangement with John Wiley & Sons) ((en))

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Funk, Anne Kathrin & Daniel Kaufmann (2022): Do Bonuses Offset the Allocative Effects of Downward Rigid Base Wages? In: AEA papers and proceedings, Jg. 112, S. 486-490. DOI:10.1257/pandp.20221097

Abstract

"We measure the labor market outcomes of employees with downward rigid base wages after an unexpected deflationary shock in Switzerland using a firm survey matched with Social Security register data. The employees that additionally receive downward flexible compensation, such as bonuses, are less likely to lose their job after a deflationary shock than those only receiving a base wage. Only a modest share of employees receives downward flexible compensation, however. Therefore, these compensation schemes do not offset the overall allocative effects of downward rigid base wages." (Author's abstract, IAB-Doku) ((en))

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Jo, Yoon J. & Sarah Zubairy (2022): State Dependent Government Spending Multipliers: Downward Nominal Wage Rigidity and Sources of Business Cycle Fluctuations. (NBER working paper 30025), Cambridge, Mass, 69 S. DOI:10.3386/w30025

Abstract

"We consider a New Keynesian model with downward nominal wage rigidity (DNWR) and show that government spending is much more effective in stimulating output in a low-inflation recession relative to a high-inflation recession. The government spending multiplier is large when DNWR binds, but the nature of recession matters due to the opposing response of inflation. In a demand-driven recession, inflation falls, preventing real wages from falling, leading to unemployment, while inflation rises in a supply-driven recession limiting the consequences of DNWR on employment. We document supporting empirical evidence, using both historical time series data and cross-sectional data from U.S. states." (Author's abstract, IAB-Doku) ((en))

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Uemura, Yuki (2022): Job Search Intensity and Wage Rigidity in Business Cycles. (KIER discussion paper series 1078), Kyoto, 34 S.

Abstract

"This paper examines the job search behavior of unemployed workers over the business cycle. The paper first constructs a standard search and matching model with endogenous search efforts, wage rigidity, and a generalized matching function. Contrary to the existing literature, the proposed model generates both procyclical and countercyclical search intensity, depending on the degree of wage rigidity and the elasticity parameter of the matching function. The paper then calibrates the model to the U.S. economy and provides various impulse response analyses. The numerical exercises show that the model successfully and simultaneously reproduces countercyclical search efforts and sizable labor market fluctuations." (Author's abstract, IAB-Doku) ((en))

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Villanueva, Ernesto & Effrosyni Adamopoulou (2022): Employment and wage effects of extending collective bargaining agreements. Sectoral collective contracts reduce inequality but may lead to job losses among workers with earnings close to the wage floors. (IZA world of labor 136), Bonn, 12 S. DOI:10.15185/izawol.136.v2

Abstract

"Der Gesamteffekt der Allgemeinverbindlichkeit von Tarifverträgen hängt davon ab, wie viele Arbeitsplätze aufgrund der tariflich geregelten Lohnuntergrenzen und sonstigen Arbeitsbedingungen abgebaut werden. Um die Auswirkungen auf Löhne und Beschäftigung bewerten zu können, müssen Informationen über Tarifverträge mit Längsschnittdaten zu Arbeitgebern und Arbeitnehmern verknüpft werden. Neue Erkenntnisse der Forschung zeigen, dass negative Effekte meist auf Arbeitnehmer mit Verdiensten in der Nähe der Mindestlöhne beschränkt sind. Öffnungsklauseln und Repräsentativitätserfordernisse können dem entgegenwirken." (Autorenreferat, IAB-Doku)

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Abbritti, Mirko, Agostino Consolo & Sebastian Weber (2021): Endogenous Growth, Downward Wage Rigidities and Optimal Inflation. (IMF working paper 2021,208), Washington, DC, 49 S.

Abstract

"Standard New Keynesian (NK) models feature an optimal inflation target well below two percent, limited welfare losses from business cycle fluctuations and long-term monetary neutrality. We develop a NK framework with labour market frictions, endogenous productivity and downward wage rigidity (DWR) which challenges these results. The model features a non-vertical long-run Phillips curve between inflation and unemployment and a trade-off between price distortions and output hysteresis that change the welfare-maximizing inflation level. For a plausible set of parameters, the optimal inflation target is in excess of two percent, a target value commonly used across central banks. Deviations from the optimal target carry welfare costs multiple times higher than in traditional NK models. The main reason is that endogenous growth and DWR generate asymmetric and hysteresis effects on unemployment and output. Price level targeting or a Taylor-rule responding to the unemployment rate can handle better the asymmetric and hysteresis effects in our model and deliver significant welfare gains. Our results are robust to the inclusion of the effective lower bound on the monetary policy interest rate." (Author's abstract, IAB-Doku) ((en))

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Bassanini, Andrea, Cyprien Batut & Eve Caroli (2021): Labor Market Concentration and Stayers' Wages. Evidence from France. (IZA discussion paper 14912), Bonn, 20 S.

Abstract

"We investigate the impact of labor market concentration on stayers' wages, where stayers are defined as individuals who were already employed in the same firm the year before. Using administrative data for France, we show that the elasticity of stayers' wages to labor market concentration ranges between -0.0185 and -0.0230, depending on the instrument we use, and controlling for labor productivity and local product market concentration. This represents between about two thirds and three fourth of the elasticity we estimate for new hires. Given the strong wage rigidities characterizing the French labor market, this estimate can be considered a lower bound of the effect of labor market concentration on stayers' wages in an international perspective." (Author's abstract, IAB-Doku) ((en))

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Cacciatore, Matteo & Federico Ravenna (2021): Uncertainty, Wages and the Business Cycle. In: The Economic Journal, Jg. 131, H. 639, S. 2797-2823. DOI:10.1093/ej/ueab019

Abstract

"We show that limited wage flexibility in economic downturns generates strong and state-dependent amplification of uncertainty shocks. It also explains the cyclical behaviour of empirical measures of uncertainty. In the presence of matching frictions, an occasionally binding constraint on downward wage adjustment enhances the concavity of firms' hiring rule, resulting in an endogenous profit risk-premium. In turn, higher uncertainty increases the profit risk-premium when the economy operates close to the wage constraint, deepening a recession. Non-linear local projections and vector autoregression estimates support the model predictions. In addition, we show that measured uncertainty rises in a recession even without uncertainty shocks." (Author's abstract, IAB-Doku) ((en))

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Jung, Euiyoung (2021): Rigid Wages, Endogenous Job Destruction, and Destabilizing Spirals. (PSE working paper / Paris School of Economics 2021-27), Paris, 71 S.

Abstract

"This paper studies the theoretical link between real wage rigidity and the destabilizing mechanism driven by the countercyclical precautionary saving demand against unemployment risk. First, I analytically show that destabilizing supply-demand feedback is a general equilibrium outcome of rigid labor cost adjustments. Second, the calibrated wage rigidity consistent with empirical labor market dynamics suggests that real wages are less likely to be sufficiently rigid to cause the destabilizing mechanism. Finally, the way we model job destruction dynamics can have a fundamental impact on the range of real wage rigidity consistent with empirical labor market dynamics and, thus, economic dynamics. Therefore, in contrast to the presumption of many researchers, assuming exogenous job destruction is not innocuous." (Author's abstract, IAB-Doku) ((en))

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Koch, Christian (2021): Can reference points explain wage rigidity? Experimental evidence. In: Journal for labour market research, Jg. 55. DOI:10.1186/s12651-021-00284-2

Abstract

"I examine whether reference points can provide an explanation for rigid wages in recessions. Even though a recession provides a good reason to adjust wages downward, workers’ perception of a “fair wage” may depend on their previous wage, their reference point. Using a laboratory experiment, I test this idea by varying whether initially concluded contracts—and their stipulated wages—can serve as reference points. My experimental results show that with initial contracts workers punish wage cuts even in recessions, leading to considerable more rigid wages. Surprisingly, this is even true without an “objective” justification to feel entitled to initial contracts." (Author's abstract, © 2021 Springer Nature) ((en))

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Köllö, János, István Boza & László Balázsi (2021): Wage gains from foreign ownership: evidence from linked employer-employee data. In: Journal for labour market research, Jg. 55. DOI:10.1186/s12651-021-00286-0

Abstract

"We compare the wages of skilled workers in multinational enterprises (MNEs) versus domestic firms, the earnings of domestic firm workers with past, future and no MNE experience, and estimate how the presence of ex-MNE peers affects the wages of domestic firm employees. The analysis relies on monthly panel data covering half of the Hungarian population and their employers in 2003 - 2011. We identify the returns to MNE experience from changes of ownership, wages paid by new firms of different ownership, and the movement of workers between enterprises. We find high contemporaneous and lagged returns to MNE experience and significant spillover effects. Foreign acquisition has a moderate wage impact, but there is a wide gap between new MNEs and domestic firms. The findings, taken together, suggest that MNE employees accumulate partly transferable knowledge, valued in the high-wage segment of the local economy that is connected with the MNEs via worker turnover." (Author's abstract, © 2021 Springer) ((en))

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Schaefer, Daniel & Carl Singleton (2021): The Extent of Downward Nominal Wage Rigidity: New Evidence from Payroll Data. (Discussion papers / University of Reading, Department of Economics 2021-22), Reading, 57 S.

Abstract

"Low inflation has forced the topic of downward nominal wage rigidity (DNWR) back to the centre stage of macroeconomics. We use over a decade of representative payroll data from Great Britain to document novel facts about wage adjustments. We find that basic wages drive the cyclicality of marginal labour costs, which makes them the most relevant wage measure for macroeconomic models that incorporate wage rigidity. Basic wages show substantially more evidence of downward rigidity than previously documented. Every fifth hourly-paid and every sixth salaried employee normally sees no basic wage change from year-to-year, and very few experience cuts. Wage freezes were more common in the Great Recession and are far more likely in smaller firms. We also find evidence that employers compress wage growth when inflation is low, indicating that DNWR constrains wage setting. Further, we show that the wages of new hires and incumbent employees respond equally to the business cycle. These results all point to the importance of including DNWR in macroeconomic and monetary policy models, and our simulations demonstrate that the empirical extent of DNWR can cause considerable long-run output losses." (Author's abstract, IAB-Doku) ((en))

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Guciardo, Christopher J. (2020): Estimating variances for modeled wage estimates. In: Monthly labor review, Jg. 143, H. March, S. 1-22. DOI:10.21916/mlr.2020.3

Abstract

"The Modeled Wage Estimates (MWE) program publishes mean hourly wages by occupation, geographic area, and worker characteristic (for example, full-time workers). The MWE program combines data from two U.S. Bureau of Labor Statistics programs: the Occupational Employment Statistics (OES) and the National Compensation Survey (NCS). For the first few years of the MWE program, there were no estimates of variance. In 2018, variance estimates were published for the first time for the MWE program, for the May 2017 reference month. This article first shows how the OES and NCS microdata are combined to produce a mean wage estimate. It then focuses on the new variance estimation methodology, highlighting how the variability of both the OES and NCS sample designs are simultaneously captured. A small sample of MWE mean wages and variances are provided for the most recent estimates, for the May 2018 reference month." (Author's abstract, IAB-Doku) ((en))

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Kerndler, Martin & Michael Reiter (2020): Wage Rigidities and Old-Age Unemployment. (EconPol policy brief 22), München, 12 S.

Abstract

"Wage smoothing is beneficial for firms and workers, but wage rigidities can lead to bilaterally inefficient separations. By comparing the impact of four policy measures regarding their impact on welfare, output and government expenditures, Martin Kerndler (TU Wien) and Michael Reiter (IHS Vienna, NYU Abu Dhabi, EconPol Europe) have identified a reasonable policy mix to counter the negative employment effects of wage rigidities." (Author's abstract, IAB-Doku) ((en))

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Lochner, Benjamin & Bastian Schulz (2020): Firm productivity, wages, and sorting. (IAB-Discussion Paper 04/2020), Nürnberg, 76 S.

Abstract

"Wachsende Lohnungleichheit geht mit Veränderungen der Allokation von Arbeitnehmern zu Arbeitgebern im Arbeitsmarkt einher. Dies spiegelt sich auch in einem steigenden Sortierungsgrad des Arbeitsmarkts wider. Wir entwickeln eine neue Methode zur Messung dieses Sortierungsgrades, welche die jeweiligen Beiträge von Arbeitnehmer- und Arbeitgeberheterogenität zur Lohnungleichheit entflechtet. Inspiriert von theoretischen Modellen der Arbeitsmarktsortierung leiten wir die Produktivität der arbeitgebenden Unternehmen aus Schätzungen von Produktionsfunktionen auf der Firmenebene ab. Wir berücksichtigen dabei insbesondere, dass die Firmenproduktivität auf der Matchebene mit der Leistungsfähigkeit der einzelnen Arbeitnehmer interagieren könnte. Anhand deutscher Daten beobachten wir, dass hochproduktive Firmen niedrige Lohnquoten aufweisen, in konzentrierten Märkten operieren und geringere Löhne zahlen als weniger produktive Firmen. Der Sortierungsgrad ist positiv aber niedriger als lohnbasierte Maße nahelegen. Er steigt mit der Zeit, getrieben durch neue Matches zwischen relativ unproduktiven Firmen und weniger leistungsfähigen Arbeitnehmern. An der Spitze geht der Sortierungsgrad zurück, was sich darin widerspiegelt, dass Arbeitnehmer die produktivsten Firmen, die relativ geringe Löhne zahlen, verlassen. Wir diskutieren Implikationen unserer Ergebnisse für die Interpretation steigender Lohnungleichheit." (Autorenreferat, IAB-Doku)

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Aloi, Marta & Andreas Hoefele (2019): Wage stickiness, offshoring and unemployment. In: Economics Letters, Jg. 177, H. April, S. 56-59. DOI:10.1016/j.econlet.2019.01.025

Abstract

"This note investigates how the effect of offshoring on unemployment is influenced by the wage setting process. We assume staggered wage contracts in an otherwise standard search and matching model. In this setup, the contract wage depends also on expected future conditions. We show that more flexibility in the wage contracting process induces greater offshoring, a decrease in the worker's job-finding probability and higher worker's wage within job spells. Notably, less stickiness leads to a fall in the rents that firms can extract by producing domestically." (Author's abstract, © 2019 Elsevier) ((en))

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Boitier, Vincent & Antoine Lepetit (2018): Reduced form wage equations in the credible bargaining model. In: Labour economics, Jg. 50, H. March, S. 92-96. DOI:10.1016/j.labeco.2016.04.003

Abstract

"We derive an explicit solution for the wage from an alternating-offer wage bargaining game à la Hall and Milgrom (2008) under a plausible parameter restriction. This solution is simple, micro-founded and permits a transparent analysis of the driving forces of wages. When it is used in a stationary steady-state search and matching model, the value of all endogenous variables can be expressed as a function of the parameters of the model and the exogenous variables. In a dynamic setup, the solution is much simpler to implement than the one found in the original paper of Hall and Milgrom (2008)." (Author's abstract, © 2016 Elsevier) ((en))

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Carlsson, Mikael & Andreas Westermark (2018): Endogenous separations, wage rigidities and unemployment volatility. (Working papers / Institute for Evaluation of Labour Market and Education Policy 2018,05), Uppsala, 33 S.

Abstract

"We show that in microdata, as well as in a search and matching model with flexible wages for new hires, wage rigidities of incumbent workers have substantial effects on separations and unemployment volatility. Allowing for an empirically relevant degree of wage rigidities for incumbent workers drives unemployment volatility, as well as the volatility of vacancies and tightness to that in the data. Thus, the degree of wage rigidity for newly hired workers is not a sufficient statistic for determining the effect of wage rigidities on macroeconomic outcomes. This finding affects the interpretation of a large empirical literature on wage rigidities." (Author's abstract, IAB-Doku) ((en))

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Snell, Andy, Heiko Stüber & Jonathan Thomas (2018): Downward real wage rigidity and equal treatment wage contracts: theory and evidence. In: Review of Economic Dynamics, Jg. 30, H. October, S. 265-284., 2018-05-24. DOI:10.1016/j.red.2018.06.001

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Snell, Andy, Heiko Stüber & Jonathan P. Thomas (2018): Downward real wage rigidity and equal treatment wage contracts. Theory and evidence. (IZA discussion paper 11504), Bonn, 39 S.

Abstract

"Recent dynamic contracting models of downward real wage rigidity with 'equal treatment' - newly hired workers cannot price themselves into jobs by undercutting incumbents - imply that real wages are relatively rigid in 'bad' times but upwardly flexible during 'good' times. We use an administrative panel dataset to establish that such asymmetries are a feature of West German labor markets. We find that the elasticity of real wages with respect to output is very close to zero in downswings but large and highly significant in upswings. In a separate analysis we find that after controlling for match fixed effects the cyclicality of new hire wages is approximately the same as that for incumbent wages regardless of whether or not they joined the establishment from unemployment This is supportive of equal treatment. We also show that a four parameter version of the equal treatment contracting model of Snell and Thomas (2010) can replicate reasonably well the salient time series properties and co-properties of real wages, output, and unemployment, in particular the asymmetric response of wages to output that we find in the data." (Author's abstract, IAB-Doku) ((en))

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Horn, Gustav A. & Andrew Watt (2017): Wages and nominal and real unit labour cost differentials in EMU. Fellowship initiative "Challenges to Integrated Markets". (European economy. Discussion paper 059), Brüssel, 44 S. DOI:10.2765/303255

Abstract

"This paper addresses the issue of current account imbalances of countries within a monetary union, now widely agreed to have been a major contributor to the persistent economic crisis in the EMU. In particular we focus on the role of wages for current account developments and a possible role for nominal incomes policies in limiting and correcting imbalances.
We set out why national current accounts remain important in a monetary union and examine the forces driving the current account balance. We present empirical evidence on current account developments in the Euro Area, focusing on countries in which a correction has occurred. Detailed counter-factual model-based simulations for Germany show that 'wage policy' on its own is scarcely able to make an impact on its huge and destabilising surplus; what is needed is a combined approach in which nominal wages follow a wage norm (productivity plus ECB target inflation rate) while aggregate demand is managed (in this case stimulated) to fully utilise productive potential.
Against this analytical background we develop a proposal for institutional reform of the Euro Area, building on existing institutions. Key elements are: reinstating the Broad Economic Policy Guidelines as the conceptual framework guiding economic policy, expanding the remit of the Fiscal Council and the Productivity Boards to cover the entire policy mix, and substantially developing the EU Macroeconomic Dialogue in particular by setting up MEDs at Euro Area and Member State levels." (Author's abstract, IAB-Doku) ((en))

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Merkl, Christian & Heiko Stüber (2017): Wage cyclicalities and labor market dynamics at the establishment level. Theory and evidence. (IZA discussion paper 11051), Bonn, 47 S.

Abstract

"Using the new AWFP dataset that covers all German establishments, we document a substantial cross-sectional heterogeneity of establishments' average real wages over the business cycle. While the median establishments' real wages are procyclical, there is a large fraction of establishments with countercyclical real wages. We are the first to show that establishments with more procyclical wages have a less procyclical hires rate and employment behavior. We propose a labor market flow model that is able to replicate these facts and thereby allows us to run counterfactual exercises. When we set the wage cyclicalities of all establishments to the one of the most procyclical establishments, labor market volatilities drop by more than 50 percent." (Author's abstract, IAB-Doku) ((en))

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Stüber, Heiko (2017): The real wage cyclicality of newly hired and incumbent workers in Germany. In: The economic journal, Jg. 127, H. 600, S. 522-546., 2015-05-28. DOI:10.1111/ecoj.12313

Abstract

"Several recent macroeconomic models assume that real wages are rigid. The wage rigidity of newly hired workers assumes a crucial role in these models, as the decision of whether to open a vacancy is primarily influenced by real hiring wages.
This paper analyses the cyclical behaviour of real wages in Germany. It considers recent concerns that not controlling for cyclical job up- and downgrading leads to biased results. The results indicate that wages are not rigid neither for all workers nor for newly hired workers but instead respond considerably to business cycle conditions." (Author's abstract, IAB-Doku) ((en))

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Tse, Michael M. H. & Sholeh A. Maani (2017): The impacts of immigration on earnings and employment. Accounting for effective immigrant work experience. In: Australian Journal of Labour Economics, Jg. 20, H. 1, S. 291-317.

Abstract

"A large segment of New Zealand's population is made up of foreign-born individuals. Despite the significant role that foreign-born individuals play in New Zealand society, little research has been done to address the impact of immigration on the labour market. In this paper we re-examine the impact of immigration in New Zealand using a panel of individual-level New Zealand Income Survey data and the national level methodology. We extend the model to include regional effects, and we incorporate measures of effective immigrant work experience, which reflect the values placed on immigrants' human capital (work experience) in the host country. We find that immigration has little impact on earnings and employment hours. The results further confirm that the effective-experience measure improves the precision of the immigration impact estimates." (Author's abstract, IAB-Doku) ((en))

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Basu, Susanto & Christopher L. House (2016): Allocative and remitted wages. New facts and challenges for Keynesian models. (NBER working paper 22279), Cambrige, Mass., 71 S. DOI:10.3386/w22279

Abstract

"Modern monetary business-cycle models rely heavily on price and wage rigidity. While there is substantial evidence that prices do not adjust frequently, there is much less evidence on whether wage rigidity is an important feature of real world labor markets. While real average hourly earnings are not particularly cyclical, and do not react significantly to monetary policy shocks, systematic changes in the composition of employed workers and implicit contracts within employment arrangements make it difficult to draw strong conclusions about the importance of wage rigidity. We augment a workhorse monetary DSGE model by allowing for endogenous changes in the composition of workers and also by explicitly allowing for a difference between allocative wages and remitted wages. Using both individual-level and aggregate data, we study and extend the available evidence on the cyclicality of wages and we pay particular attention to the response of wages to identified monetary policy shocks. Our analysis suggests several broad conclusions: (i) in the data, composition bias plays a modest but noticeable role in cyclical compensation patterns; (ii) empirically, both the wages for newly hired workers and the 'user cost of labor' respond strongly to identified monetary policy innovations; (iii) a model with implicit contracts between workers and firms and a flexible allocative wage replicates these patterns well. We conclude that price rigidity likely plays a substantially more important role than wage rigidity in governing economic fluctuations." (Author's abstract, IAB-Doku) ((en))

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Elsby, Michael W., Donggyun Shin & Gary Solon (2016): Wage adjustment in the Great Recession. In: Journal of labor economics, Jg. 34, H. 1/Pt. 2, S. S249-S291.

Abstract

"Using 1979 - 2012 CPS data for the United States and 1975 - 2012 NES data for Great Britain, we study wage behavior in both countries, with particular attention to the Great Recession. Real wages are procyclical in both countries, but the procyclicality of real wages varies across recessions, and does so differently between the two countries, in ways that defy simple explanations. We devote particular attention to the hypothesis that downward nominal wage rigidity plays an important role in cyclical employment and unemployment fluctuations. We conclude that downward wage rigidity may be less binding and have lesser allocative consequences than is often supposed." (Author's abstract, IAB-Doku) ((en))