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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))

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Herzog-Stein, Alexander, Camille Logeay, Ulrike Stein & Rudolf Zwiene (2016): Deutsche Arbeitskosten auf Stabilitätskurs. Arbeits- und Lohnstückkostenentwicklung 2015 im europäischen Vergleich. (IMK Report 116), Düsseldorf, 26 S.

Abstract

"Das IMK analysiert regelmäßig mittels Daten von Eurostat die Entwicklung der Arbeits- und der Lohnstückkosten in Europa. Dabei wird die Entwicklung der Arbeitskosten in der Privatwirtschaft, im privaten und im öffentlichen Dienstleistungssektor und im Verarbeitenden Gewerbe in wichtigen europäischen Ländern sowie dem Euroraum und der Europäischen Union als Ganzes dargestellt. In dieser aktuellen Auswertung wird auch der Frage nachgegangen, inwieweit die Einführung des allgemeinen gesetzlichen Mindestlohns im Jahr 2015 in Höhe von 8,50 Euro pro Stunde in Deutschland Einfluss auf den Anstieg der Arbeitskosten insgesamt hatte. Im Anschluss daran wird die Entwicklung der Lohnstückkosten untersucht und den Auswirkungen auf die preisliche Wettbewerbsfähigkeit nachgegangen. Im Jahr 2015 kostete in Deutschland eine Arbeitsstunde in der Privatwirtschaft 32,7 Euro. Wie im Vorjahr belegt Deutschland damit im europäischen Länderranking den achten Platz. Mit einer Veränderungsrate von 2,7 % stiegen die Arbeitskosten in Deutschland im Jahr 2017 stärker als im europäischen Durchschnitt. In den meisten Krisenländern stagnierten oder sanken die Arbeitskosten erneut. In Deutschland sind im Jahr 2015 die Arbeitskosten im Verarbeitenden Gewerbe mit 2,7 % genauso stark gestiegen wie im Privaten Dienstleistungssektor. Damit hat sich der prozentuale Abstand zwischen beiden Wirtschaftsbereichen zwar nicht erhöht, beträgt aber immer noch wie im letzten Jahr über 21%. Das ist der größte Abstand zwischen den Sektoren von allen EU Mitgliedsländern. Die Anpassungsprozesse der Krisenländer haben sich auch im Jahr 2015 fortgesetzt, so dass die durchschnittliche Lohnstückkostenentwicklung des Euroraums mit 1% deutlich unter der Zielinflationsrate der EZB von knapp 2 % lag. Damit entwickelt sich der Euroraum als Ganzes nicht stabilitätskonform. In Deutschland stiegen die Lohnstückkosten um 2 %. Da die deutschen Lohnstückkosten aber seit Beginn der Währungsunion deutlich schwächer gestiegen sind, als mit dem Inflationsziel der EZB vereinbar, sollten die Löhne in Deutschland über mehrere Jahre hinweg deutlich überdurchschnittlich steigen, um den Anpassungsprozess der Krisenländer zu unterstützen." (Autorenreferat, IAB-Doku)

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Krogh, Tord S. (2016): Real wage rigidity and the unemployment volatility puzzle in small open economies. In: Oxford economic papers, Jg. 68, H. 1, S. 131-151. DOI:10.1093/oep/gpv059

Abstract

"Standard search models of the labour market feature a volatility puzzle: labour market variables move too little in response to productivity shocks. I investigate if real wage rigidity is sufficient to solve this in an open economy. Starting from a closed economy benchmark in which wage rigidity makes labour market variables sufficiently volatile, I find that the puzzle reopens in the open economy, despite a rigid real wage. This is because terms of trade movements move the wedge between the consumer and producer real wage in such a way that labour market variables respond less to productivity shocks. A quantitative exercise shows that the effect of this mechanism can be sizeable." (Author's abstract, IAB-Doku) ((en))

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Kátay, Gábor (2016): Do firms provide wage insurance against shocks? In: The Scandinavian journal of economics, Jg. 118, H. 1, S. 105-128. DOI:10.1111/sjoe.12128

Abstract

"Implicit contract models imply that it is Pareto optimal for risk-neutral firms to provide insurance to risk-averse workers against shocks. Using a matched employer - employee dataset, I evaluate wage responses to both permanent and transitory shocks in Hungary, and compare my results to similar studies on Italian, Portuguese, German, and French datasets. I find that the magnitude of the wage response differs depending on the nature of the shock. Broadly speaking, the wage response to permanent shocks is twice the size of the response to transitory shocks. Unlike previous findings, my results show that full insurance against transitory shocks is rejected." (Author's abstract, Published by arrangement with John Wiley & Sons) ((en))

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Limbers, Jan, Thieß Petersen & Michael Böhmer (2016): Lohnimpulse und Wirtschaftswachstum. Eine Simulationsanalyse für die Eurozone. In: Wirtschaftsdienst, Jg. 96, H. 2, S. 122-127. DOI:10.1007/s10273-016-1936-x

Abstract

"Seit der globalen Finanz- und Wirtschaftskrise und der sich daran anschließenden Staatsschuldenkrise stellt sich die Frage, ob die Krisenländer durch eine Verbesserung ihrer internationalen preislichen Wettbewerbsfähigkeit auf einen stabilen Wachstumspfad zurückkehren können, z.B. durch Lohnzurückhaltung. Anhand von Simulationsrechnungen für unterschiedliche Lohnsetzungsstrategien auf europäischer Ebene bis 2030 werden deren Vor- und Nachteile diskutiert." (Autorenreferat, © Springer-Verlag)

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Merkl, Christian & Heiko Stüber (2016): Wage cyclicalities and labor market dynamics at the establishment level. Theory and evidence. (FAU Discussion papers in economics 12/2016), Nürnberg, 34 S.

Abstract

"This paper analyzes the effects of different wage cyclicalities on labor market flow dynamics at the establishment level. We derive a model that allows for heterogeneous wage cyclicalities across firms over the business cycle and confront the theoretical results with the new AWFP dataset, which comprises the entire universe of German establishments. In line with theory, establishments with more procyclical wage movements over the business cycle have a more countercyclical hires rate and employment behavior. This result is robust when we look at certain sectors and states. Wage cyclicalities do not only have the expected qualitative impact on stocks and flows, but the quantitative responses are also in line with the proposed model. More generally, our empirical results provide support for theories that lead to an effect of wage rigidities on labor market flow dynamics." (Author's abstract, IAB-Doku) ((en))

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Pischke, Jörn-Steffen (2016): Wage flexibility and employment fluctuations. Evidence from the housing sector. (CEP discussion paper 1440), London, 24 S.

Abstract

"Many economists suspect that downward nominal wage rigidities in ongoing labor contracts are an important source of employment fluctuations over the business cycle but there is little direct empirical evidence on this conjecture. This paper compares three occupations in the housing sector with very different wage setting institutions, real estate agents, architects, and construction workers. I study the wage and employment responses of these occupations to the housing cycle, a proxy for labor demand shocks to the industry. The employment of real estate agents, whose pay is far more flexible than the other occupations, indeed reacts less to the cycle than employment in the other occupations. However, unless labor demand elasticities are large, the estimates do not suggest that the level of wage flexibility enjoyed by real estate agents would buffer employment fluctuations in response to demand shocks by more than 10 to 20 percent compared to completely rigid wages." (Author's abstract, IAB-Doku) ((en))

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Benigno, Pierpaolo, Luca Antonio Ricci & Paolo Surico (2015): Unemployment and productivity in the long run. The role of macroeconomic volatility. In: The Review of Economics and Statistics, Jg. 97, H. 3, S. 698-709. DOI:10.1162/REST_a_00508

Abstract

This paper presents a new empirical regularity between the volatility of productivity growth and long-run unemployment for a given level of long-run productivity growth. A theoretical framework based on asymmetric real wage rigidities is shown to have the potential to rationalize this finding. The model tends to fit U.S. long-run unemployment better than a specification based on long-run productivity growth only, especially during the Great Moderation and the Great Recession.

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Caju, Philip du, Theodora Kosma, Martina Lawless, Julián Messina & Tairi Rõõm (2015): Why firms avoid cutting wages. Survey evidence from European firms. In: ILR review, Jg. 68, H. 4, S. 862-888. DOI:10.1177/0019793915586973

Abstract

"Firms very rarely cut nominal wages, even in the face of considerable negative economic shocks. The authors of this article use a unique survey of 14 European countries to ask firms directly about the incidence of wage cuts and to assess the relevance of a range of potential reasons for why the firms avoid cutting wages. They examine how firm characteristics and collective bargaining institutions affect the relevance of each of the common explanations for the infrequency of wage cuts. Concerns about the retention of productive staff and a lowering of morale and effort were reported as key reasons for downward wage rigidity across all countries and firm types. Restrictions created by collective bargaining were found to be an important consideration for firms in Western European (EU-15) countries but were one of the lowest-ranked obstacles in the new EU member-states in Central and Eastern Europe." (Author's abstract, IAB-Doku) ((en))

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Deelen, Anja & Wouter Verbeck (2015): Measuring downward nominal and real wage rigidity. Why methods matter. (CPB discussion paper / CPB Netherlands Bureau for Economic Policy Analysis 315), Den Haag, 33 S.

Abstract

"Although wage rigidity is an important topic, there is no full consensus in the literature on how to measure downward nominal and real wage rigidity. We conceptually and empirically compare the three commonly used methods for estimating wage rigidity: the simple approach as developed by the International Wage Flexibility Project (IWFP), the model based IWFP approach and the Maximum Likelihood approach. We estimate the three models on administrative panel data at the individual level for the Netherlands (2006-2012). One main finding is that assumptions regarding the 'notional' wage change distribution (which would prevail in the absence of wage rigidity) are an important determinant of the level of wage rigidity measured. We conclude that the model-based IWFP approach is the preferred model of the three, for it has the most sophisticated method to address measurement error and the assumptions regarding the wage change distribution that would prevail in absence of wage rigidity are most plausible.
Furthermore we have researched the correlation between wage rigidity and worker and firm characteristics. Although the methods do not agree on the amount of rigidity, they agree for a large part on what variables have a positive or negative relation with downward nominal or real wage rigidity. We find that the presence of wage rigidity is unevenly distributed among groups of workers: downward nominal and real wage rigidity in the Netherlands are positively related to a higher age, higher education, open-end contracts, full-time contracts and to working in a firm that experiences zero or positive employment growth. The consistency in the findings regarding the determinants of wage rigidity indicate that all three methods measure the same phenomenon, which implies that estimates of determinants of wage rigidity can be compared over countries using any of the three methods. However, for measuring the fraction of workers covered by downward nominal or real wage rigidity, the choice of the method matters.
Besides, we contribute to the literature by providing accurate, internationally comparable estimates of wage rigidity in the Netherlands. The overall picture is that the Netherlands has a less than average amount of downward nominal wage rigidity but and an above average level of downward real wage rigidity, compared internationally." (Author's abstract, IAB-Doku) ((en))

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Dias, Daniel A., Carlos R. Marques & Fernando Martins (2015): A replication note on downward nominal and real wage rigidity. Survey evidence from European firms. In: Empirical economics, Jg. 49, H. 3, S. 1143-1152. DOI:10.1007/s00181-014-0902-y

Abstract

"This note shows that the models estimated in Babecký et al. (Scand J Econ 112(4):884 - 910, 2010) do not allow identifying the determinants of downward nominal wage rigidity and provides new empirical evidence on the importance of downward nominal wage rigidity and its determinants in several European countries." (Author's abstract, IAB-Doku) ((en))