Does pay affect productivity or react to it?: Examination of U.S. manufacturing

There may be a bi-directional relationship between wages and labor productivity. According to conventional theory, employers reward improvements in productivity by raising pay. It also has been argued that wage increases can provide an incentive to improve productivity. This study applies a technique by Geweke to identify the feedback between pay and productivity in U.S. manufacturing. For the 1949–1998 period, measures of directional feedback indicate that both “pay as reward” and “pay as incentive” behaviors have occurred, but the results vary across manufacturing subsectors.     

Monopsonistic discrimination, worker turnover, and the gender wage gap

Motivated by models of worker flows, we argue in this paper that monopsonistic discrimination may be a substantial factor behind the overall gender wage gap. Using matched employer–employee data from Norway, we estimate establishment-specific wage premiums separately for men and women, conditioning on fixed individual effects. Regressions of worker turnover on the wage premium identify less wage elastic labour supply facing each establishment of women than that of men. Workforce gender composition is strongly related to employers' wage policies. The results suggest that 70–90% of the gender wage gap for low-educated workers may be attributed to differences in labour market frictions between men and women, while the similar figures for high-educated workers ranges from 20 to 70%.     

Job mobility and careers in firms

This paper presents a theoretical model that combines employers learning about worker productivity, human capital acquisition, job-assignment and resolution of worker uncertainty regarding disutility of work from a job, to show how widely documented findings on both wage and promotion dynamics and turnover can be captured in a single set-up. Specifically we show how our model can capture results such as; probability of turnover decreases with labor market experience, wage changes during job changes is more in earlier periods, serial correlation in wages and probability of promotion increases in wages, amongst others.     

The equal pay act: Responsibilities and rights

The Equal Pay Act of 1963 (EPA) requires that men and women receive equal pay for equal work. Plaintiffs who claim discrimination on the basis of the EPA may settle out of court, or may bring legal action in the courts. Employers possess specific rights under the law, and can defend themselves against charges of discrimination through a number of “employer defenses.” These defenses involve providing that pay differences are based on seniority systems, merit systems, production systems, or “any other factor other than sex.” This article will also discuss the impact of court decisions that have further honed the responsibilities and rights of both employees and employers under the EPA.     

A Simple Test for Convergence of Metropolitan Income in the United States

The prevalent test for income convergence used in many recent studies of convergence across spatial economic units in the United States is to use a regression equation in which income growth is regressed against the initial level of income (this is known as β convergence). That method, however, has been crtiticized as an instance of Galton's fallacy of regression. We devise a simple test for the income β-convergence hypothesis which does not suffer from “Galton's fallacy” and apply it to all of the metropolitan areas of the United States for the period 1969–1995. For the test we use two income measures: per capita personal income and average wages. Our results conclusively support convergence of per capita personal income and of wage per worker for metropolitan areas in the United States. We also test for σ convergence, the hypothesis of diminishing dispersion in income among places over time, and find no support for the hypothesis.     

Effects on earnings of the removal of direct discrimination in minimum wage rates: A validation of the Blinder decomposition

Prior to 1969, the Australian labour market was characterised by institutionalised gender wage discrimination. Wages for the majority of the workforce were set by government wage tribunals, and these tribunals set the wages of women at 75 percent of the male rate of pay. Following equal pay decisions in 1969 and 1972, the award rates of pay for all work were, by June 1975, to be determined without consideration of the sex of the worker. Examination of data from surveys conducted in 1973 and 1989 show that the removal of this institutionalised discrimination is captured by the Blinder (1973) and Oaxaca (1973) wage decompositions as a marked decline in the absolute value of the ‘discrimination’ component of the gender pay gap. The analyses also reveal some merit in the decomposition proposed by Cotton (1988).     

Wages,fringe benefits and worker turnover

Linked employer–employee data from Norway are utilised to study how employers use wages and fringe benefits in managing their workforce. The analysis shows that on average across all establishments, we observe a positive correlation between wages and fringe benefits. This indicates the presence of labour market frictions and thus is not supportive of the classical frictionless hedonic wage model. Higher wages and more fringe benefits reduce the worker turnover rate. Fringe benefits have stronger negative impact on the excess worker turnover rate than indicated by the reported monetary value.     

Panel estimates of a two-tiered earnings frontier

This paper uses panel data to estimate a two-tiered instead of a one-tiered frontier model. The innovation is to develop a two-step maximum likelihood procedure yielding consistent estimates of inefficiency, while at the same time accounting for heterogeneity. The model is applied by estimating a ‘two-tiered’ earnings function to obtain indices of worker and firm incomplete labour market wage information using panel data from the Panel Study of Income Dynamics (1969–84). The estimation preserves the traditional quadratic age-earnings profile, but measures the extent to which employers often pay more than necessary to hire a worker (incomplete employer information), while at the same time, employees often accept wages less than they could otherwise command (incomplete employee information). The results indicate that employees acquire less information than employers. © 1996 John Wiley & Sons, Ltd.     

Labour market oligopsonistic competition: The effect of worker immobility on wages

We suggest that firms in a local labour market may be able to exploit worker mobility costs and offer immobile workers wages that are lower than their marginal product. If so, the ability of employers to exploit worker immobility in setting wages would decline in the competitiveness of the local labour market. We test this intuition using a measure of individual mobility costs and measures of local labour market competition. Our findings suggest that worker immobility causes substantial wage variation across workers in small, weakly competitive markets, and in occupations where wages are individually bargained.     

Dismissals and match-specific rents

Labor contracts that result in dismissals are quite common in the real world. The question that arises is why employers do not just offer reduced wages instead of asking workers with low realized productivity to leave. This paper argues that such behavior can be explained by workers' understandable unwillingness to agree to contracts that an employer will not have an incentive to honor in the future. Specifically, we construct a matching model in which the employer and the worker are both uncertain about the value the other places on the match. Because the worker's match-specific productivity is the employer's private information, a commitment to pay a wage equal to the worker's value of marginal product is not enforceable. In the absence of a wage guarantee, the employer will offer retained workers wages below their value of marginal product, which causes quits to be inefficiently high. The employer can reduce quits by contractually promising a guaranteed wage to retained workers. Although this will lead to some involuntary dismissals, the loss from dismissals will be less than the gain from lower quits if the wage guarantee is not too high.     

Worker poaching in a supply chain: Enemy from within?

Worker poaching represents the primary mode by which workers change employers. We examine worker poaching between firms linked in a value chain. We find that, in a value chain, the less productive firm may offer its workers higher wages and poach workers from the more productive firm. We also find that worker flows accomplished via poaching impact supply chain management: (a) the identity of the bottleneck firm may depend on whether poaching is available; (b) poaching between linked firms may benefit both, and (c) the value chain cannot be fully coordinated without controlling wages in the labor market.     

Sexual orientation discrimination in the labour market

This research examines the possible discrimination faced by gay men compared to heterosexuals when applying for jobs in the Greek private sector. This issue was addressed through the observation of employer hiring decisions. Mailing pairs of curriculum vitae, distinguished only by the sexual orientation of the applicants, led to the observation that gay men faced a significantly lower chance of receiving an invitation for an interview. However, in cases where employers called applicants back, the wages offered did not differ significantly between gay and heterosexual applicants. Nevertheless, there is substantial evidence to suggest that discrimination based on sexual orientation does exist in the Greek labour market, and at alarmingly high levels.     

Occupational gender segregation Trends and explanations

This article examines recent research on occupational segregation by gender. It reviews and evaluates statistical approaches to measuring the extent to which women are disproportionately represented in “women’s jobs” and men in “men’s jobs.” By combining the findings of a number of studies, it traces the changes in the extent in occupational segregation from the end of the nineteenth century until 1995, and the forms and extent of gender segregation in occupations cross-nationally. In addition to the trends, this article considers the consequences of segregation to women. Finally, current explanations for occupational segregation are analyzed and assessed by considering the empirical data on occupational segregation.     

Government wage differentials

This paper shows that public sector wages usually exceed private but the size and composition of the differentials depend on sex and level of government. Using a technique derived from the literature on sex discrimination, these differentials are decomposed into a portion attributable to differences in productivity between the two types of workers and a portion ascribed to economic rent. This rent results from public workers' relatively greater political influence in the government wage-setting process and a systematic upward bias in public wages imparted by present government pay policy.     

Measuring labor cost for productivity comparison

This paper presents measures of labor cost applicable when the wage and marginal product are not equal by period. The user cost of labor, an alternative to the wage, is the price of hiring the services of the worker per unit time. This user cost is dependent on the sequence of wages earned by a worker over a career, interest rates, and career length or eventual tenure. For the United States, 1963–1978, labor compensation shares based on the wage exceed those for the user cost. After 1978, the reverse obtains. The contribution of labor, and measured productivity performance is sensitive to the price of labor services.This paper was processed by M. Brown.     

Minimum wages and training

The paper analyzes the influence of minimum wages on firms' incentive to train their employees. We show that this influence rests on two countervailing effects: minimum wages (i) augment wage compression and thereby raise firms' incentives to train and (ii) reduce the profitability of employees, raise the firing rate and thereby reduce training. Our analysis shows that the relative strength of these two effects depends on the employees' ability levels. Our striking result is that minimum wages give rise to skills inequality: a rise in the minimum wage leads to less training for low-ability workers and more training for those of higher ability. In short, minimum wages create a ”low-skill trap.” We indicate that this effect may be important empirically. Finally, including workers' incentives to train themselves makes no major difference to our results.     

Beauty, Stature and the Labour Market: A British Cohort Study

The influence of physical appearance in the labour market is examined using longitudinal cohort data covering 11,407 individual born in Britain in 1958. Results show that physical appearance has a substantial effect onearnings and employment patterns for both men and women. Irrespective ofgender, those who are assessed as unattractive or short, experience a significant earnings penalty. Tall men receive a pay premium while obese womenexperience a pay penalty. The bulk of the pay differential for appearance arises from employer discrimination, although we find evidence for productivity differences among occupations. The impact of physical appearance is also evident in the marriage market. Among women, those who are tall or obese are less likely to be married; while among men, lower marriage rates are found for those who are short or unattractive.     

The benefits and costs of training: A comparison of formal company training,vendor training,outside seminars,and school-based training

This paper presents estimates of the amount of training received by a large sample of United States adults aged 23–35 and uses a more sophisticated model than many previous studies to analyze training's impact on earnings. While workers reap substantial benefits from training, only a small minority actually receive it. Workers generally do not work fewer hours or accept lower wages during training, so they apparently bear few training costs. The low incidence of training may be due to Federal regulations that prevent employers from sharing training costs with their employees. Implications for managers, employees, and society are discussed. & copy; 1996 by John Wiley & Sons, Inc.     

The effect of search frictions on wages

We aim to test whether the degree of informational search frictions in the labor market has a negative effect on wages. In a range of equilibrium search models of the labor market, this effect is predicted to be negative. Nevertheless, this has never been tested. We perform tests with matched worker–firm data. The worker data are informative on individual wages and labor market transitions, and this allows for estimation of the degree of search frictions. The firm data are informative on labor productivity. This allows us to investigate how the mean difference between labor productivity and wages in a market depends on the degree of frictions and other determinants, and to assess the quantitative relevance of frictions for wages.     

The impact of unemployment insurance taxes on wages

This paper examines the incidence of state unemployment insurance taxes on wages paid to workers in various demographic groups. The empirical work matches state level measures of unemployment insurance tax and benefit variables to data aggregated from the Current Population Survey on worker earnings for the period 1992 to 2002. Econometric evidence presented in the paper supports the paper's main hypothesis that UI tax rate structure has its greatest adverse impact on less mobile workers (prime age married women and young workers) and little impact on more mobile workers (prime age men).