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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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Arabzadeh, Hamzeh, Almut Balleer & Britta Gehrke (2020): Uncovering the mechanism(s): Financial contraints and wages. (IZA discussion paper 13979), Bonn, 63 S.

Abstract

"How do wages respond to financial recessions? Based on a dynamic macroeconomic model with frictions in the labor and the financial market, we address two prominent mechanism through which firms' financial constraints amplify unemployment and explore their effect on wages. First, the financial labor wedge reduces wages. Second, financial constraints may interact with aggregate labor market conditions in various ways putting upward or downward pressure on wages. We test partial-equilibrium implications of these theoretical mechanisms based on a large data set for Germany for 2006 to 2014 that combines administrative data on workers and wages with detailed information on the balance sheets of firms. Both mechanisms play a role empirically. Using our estimates as central calibration targets in our model, we document that financial recessions are associated with a substantial decline in both unemployment and wages. Financial constraints therefore weaken the direct link between wage rigidity and unemployment volatility." (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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Tanaka, Yasuhito (2020): Involuntary unemployment with indivisible labor supply under perfect competition. In: Economics Bulletin, Jg. 40, H. 3, S. 1914-1923.

Abstract

"We show the existence of involuntary unemployment without the assumption of wage rigidity under perfect competition with indivisible labor supply and decreasing or constant returns to scale technology. We derive involuntary unemployment by considering consumers' utility maximization and firms' marginal cost pricing behavior using an overlapping generations model with three generations including childhood generation." (Author's abstract, IAB-Doku) ((en))

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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))