Performance Pay,Union Bargaining and Within‐Firm Wage Inequality*

Theory predicts that performance pay boosts wage dispersion. Workers retain a share of individual productivity shocks and high‐efficiency workers receive compensation for greater effort. Collective bargaining can mitigate the effect of performance pay on wage inequality by easing monitoring of common effort standards and group‐based pay schemes. Analyses of longitudinal employer–employee data show that the introduction of performance‐related pay raises wage inequality in non‐union firms, but not in firms with high union density. Although performance‐related pay appears to be on the rise, the overall impact on wage dispersion is likely to be small, particularly in European countries with influential unions.     

The Roles of Employer and Employee Characteristics for Plant Productivity

The relationships of worker characteristics and productivity are examined using a matched worker-plant data set from Finnish manufacturing. The panel data are used for estimating productivity and wage profiles according to average age, seniority, and education. We measure productivity using the multilateral total factor productivity index. We find that the wage returns to plant-specific seniority exceed productivity returns when seniority is high. This result supports the hypothesis that human capital is not firm specific, and seniority related wages are used for incentive reasons, but may also be a symptom of sorting or insider influences on wage formation. Plant average age improves productivity more than it increases wage when average age is low, but for higher ages the productivity and wage returns to age are fairly similar. The returns to education in terms of wage and productivity are fairly close to each other for higher levels of education, but mid-level education is underpaid.     

21st‐century models of employee representation: structures,processes and outcomes

The 2004 Workplace Employment Relations Survey allows further exploration of the fate or workplace‐based forms of employee representation charted by earlier surveys. We describe the occurrence and diversity of representational forms, union, non‐union and ‘hybrid’, and the structural characteristics of workplaces where they are found. We go on to analyse a number of structural and processual differences and differences in outcomes. In particular, we try to estimate the effects of different forms for outcomes such as wage dispersion, procedural ‘fairness’ and productivity. The data show that ‘hybrid’ systems of union and non‐union representation are associated with the best outcomes, therefore, notwithstanding the continuing decline in the diffusion of the ‘traditional’ union‐based model of workplace representation, union presence is still a prerequisite for effective representation, while ‘pure’ non‐union forms serve neither employee nor employer interests.     

Job security and employee well-being: Evidence from matched survey and register data

We examine the effects of establishment- and industry-level labor market turnover on employees' well-being. The linked employer-employee panel data contain both survey information on employees' subjective well-being and comprehensive register-based information on job and worker flows. We test for the existence of compensating wage differentials by explaining wages and job satisfaction with average uncertainties, measured by an indicator for a high excessive turnover (churning) rate. The results are consistent with the theory of compensating wage differentials, since high uncertainty increases real wages, but high uncertainty has no effect on job satisfaction while not controlling for wages.     

Can a minimum wage increase employment and reduce prices in a neoclassical perfect information economy?

This paper investigates the possibility that the imposition of a minimum wage increases employment in the affected sector, measured in terms of hours of work, and lowers product prices. Unlike related prior theoretical research, I consider a neoclassical perfect information economy. Both labor and product markets are assumed to be perfectly competitive. Workers choose the number of hours of work and their effort level. Workers can potentially, but not necessarily, differ in their preferences over income, leisure, and effort. Effort is perfectly observable by the employers. The general framework that highlights the channels through which a minimum wage can increase employment and reduce prices is introduced and necessary and sufficient conditions derived. The paper also develops a number of comparative statics and some illustrative examples. The results provide a simple theoretical foundation that explains some recent findings of the empirical literature on minimum wages. Auxiliary results help explain the effects of minimum wage on the entire wage distribution in a way that is consistent with empirical findings. Finally, welfare analysis shows that worker welfare and employment tend to go in opposite directions; in particular, if employment increases after the imposition of the minimum wage, worker welfare will be reduced, though not necessarily vice versa (the opposite is true for consumer welfare). Strikingly, if a minimum wage increases worker welfare, the chief beneficiaries are not the affected workers but those with incomes that exceed the minimum wage.     

The age-productivity gradient: Evidence from a sample of F1 drivers

Estimating the effect of aging on productivity requires clean measures of productivity. Additionally, one needs to control for unobserved heterogeneity at the worker, firm and worker/firm level, to account for the role of experience and to correct for selection bias. We tackle these issues exploiting a panel of Gran Prix Formula One drivers, which provides a unique setting to single out the data requirements needed to credibly estimate the effect of age on productivity. Results robust to the inclusion of worker, firm and match effects show that the age-productivity link has an inverted U-shape profile with a peak at the age of 30-32. The use of repeated cross-sections of individuals also produces consistent results provided that cohort effects are properly accounted for. Relying on team-average measures of productivity makes instead inference harder.     

Great expectations: Past wages and unemployment durations

Decomposing wages into worker and firm wage components, we find that firm-fixed components are sizeable parts of workers' wages. If workers can only imperfectly observe the extent of firm-fixed components in their wages, they might be misled about the overall wage distribution. Such misperceptions may lead to unjustified high reservation wages, resulting in overly long unemployment durations. We examine the influence of previous wages on unemployment durations for workers after exogenous lay-offs and, using Austrian administrative data, we find that younger workers are, in fact, unemployed longer if they profited from high firm-fixed components in the past. We interpret our findings as evidence for overconfidence generated by imperfectly observed productivity.     

Wage Formation,Regional Migration and Local Labour Market Tightness*

Empirical studies of regional wage formation and interregional migration routinely include the regional unemployment rate as indicator of local labour market tightness. However, these studies are usually motivated by economic theories that emphasize transition probabilities between unemployment and employment, and the unemployment rate is an imperfect proxy for these probabilities. We use a large micro data set to compute estimates of the rate of outflow from unemployment for 90 Norwegian travel‐to‐work areas. The outflow rates perform better than traditional measures of regional labour market tightness in panel data analyses of regional wages and interregional migration.     

What is the most flexible component of wage bill adjustment? Evidence from Belgium

This paper decomposes wage bill changes at the firm level into components due to wage changes, and components due to flows of employment. It relies on an administrative matched employer–employee dataset of individual earnings merged with firms' annual accounts for Belgium over the period 1997–2001. The results are in line with what one would expect in a downward wage rigidity environment. On average, wage bill contractions result essentially from employment cuts in spite of wage increases. Wage growth of job stayers is moderated but positive; and wages of entrants compared with those of incumbents are no lower. The labour force cuts are achieved through both reduced entries and increased exits, due to more layoffs, especially in smaller firms, and wider use of early retirement, especially in manufacturing. In addition, the paper points out the role of overtime hours, temporary unemployment and interim workers in adapting hours worked to economic circumstances.     

Why So Unhappy? The Effects of Unionization on Job Satisfaction*

Using linked employer–employee data we investigate the job satisfaction effect of union membership in Britain. We develop a model that simultaneously controls for the determinants of individual membership status and for the selection of employees into occupations according to union coverage. We find a negative association between membership and satisfaction. However, having accounted for selection effects, we find that the negative association is confined to non‐covered employees. This is consistent with ‘voice’ effects, whereby non‐covered members voice dissatisfaction to achieve union goals, and with the possibility that membership increases preferences for collective bargaining, thus lowering members’ satisfaction in non‐covered environments.     

The Impact of Training on Productivity and Wages: Evidence from British Panel Data*

It is standard in the literature on training to use wages as a sufficient statistic for productivity. This paper examines the effects of work‐related training on direct measures of productivity. Using a new panel of British industries 1983–96 and a variety of estimation techniques we find that work‐related training is associated with significantly higher productivity. A 1% point increase in training is associated with an increase in value added per hour of about 0.6% and an increase in hourly wages of about 0.3%. We also show evidence using individual‐level data sets that is suggestive of training externalities.     

Employment,Inequality and the UK National Minimum Wage over the Medium‐Term*

We assess the impact of the national minimum wage (NMW) on employment and inequality in the UK over the decade since its introduction. We evaluate its effects in each year, using an incremental differences‐in‐differences (IDiD) estimator. Identification is based on variation in the bite of the NMW across local labour markets and the different sized year on year up‐ratings. We find that an increased bite of the NMW is associated with falls in lower tail wage inequality. While the average employment effect over the entire period is broadly neutral, there are small but significant positive NMW effects from 2003 onwards.     

Gender earnings gap: the role of firm specific effects

The gender earnings differential is an intensely studied issue in labour economics. However, existing studies do not examine how the wage policies of firms affect gender earnings differentials. This paper uses employer–employee linked data to address this issue. The Juhn et al. [Juhn, C., Murphy K., Pierce, B., 1991. Accounting for the slowdown in black–white wage convergence, in M.H. Kosters, ed. Workers and Their Wages, AEI Press, 107–143] decomposition methodology is extended to incorporate the decomposition of firm fixed effects. It is found that, on average, firms' wage policies are associated with a significant narrowing of the gender earnings gaps. Further analysis indicates that firms which are more likely to have narrower gender earnings gaps are those subject to strong market competition, find it easy to identify labour productivity at the individual level, and with no enterprise level wage bargaining.     

Knowledge Concerning Employees’ Legal Rights at Work among Banking Employees in Malaysia

This study was conducted to determine the level of knowledge concerning employee rights under the Employment Act, Trade Unions Act and Industrial Relations Act among banking employees in Malaysia. This study also identified the specific areas of employee rights that employees are most familiar with and compared this level of knowledge by gender, age, tenure, and level of education. The findings revealed that the respondents do not possess sound knowledge of their legal rights. The respondents have the highest level of knowledge on employee basic rights, and have the lowest level of knowledge on rights to termination and dismissal. There was a small difference in the level of knowledge between male and female; however the level of knowledge increases with employes’ age, tenure and level of education.     

Seniority wages and establishment characteristics

A representative linked employer-employee panel and an innovative two-step estimation strategy are used to show that large and profitable establishments as well as establishments with a highly qualified workforce pay high seniority wages. Also collective bargaining coverage, works councils and reduced working time for older employees are positively correlated with seniority wages, the share of foreigners, females as well as initial wage levels for job entrants are negatively correlated. These results support an agency based motivation for seniority wages with older employees' wages set higher than their productivity.     

New Insights into Unemployment Duration and Post Unemployment Earnings in Germany*

Building on non‐stationary search theory ( Mortensen, 1977 ; Van den Berg, 1990 ), this article estimates the effects of UB on unemployment durations and future earnings using unique administrative data in Germany. We apply censored Box–Cox quantile regression. Our results imply that the length of entitlement shows only a weak effect on unemployment duration for entitlement lengths up to 12 months and no effect on post unemployment earnings. There are noticeable effects on exits from unemployment for entitlement lengths above 12 months. A high wage replacement rate for low‐wage earners is associated with a longer duration of unemployment and higher post unemployment earnings.     

Regional Competition for Domestic and Foreign Investment: Evidence from State Development Expenditures

We develop a model in which state governments spend funds on attracting capital with the intent of maximising the local net wage. Our results suggest that states are likely to spend less on economic development as the state wage level increases, and to spend more on industrial development as the state wage level increases, and to spend more on industrial development as the share of manufacturing in the state labor force increases. Empirical tests using state expenditure data confirm the predictions of the model.     

Inter‐industry Wage Differences and Individual Heterogeneity*

Two well‐established findings are apparent in the analyses of individual wage determination: cross‐section wage equations can account for less than half of the variance in earnings and there are large and persistent inter‐industry wage differentials. We explore these two empirical regularities using longitudinal data from the British Household Panel Survey (BHPS). We show that around 90% of the variation in earnings can be explained by observed and unobserved individual characteristics. However, small – but statistically significant – industry wage premia do remain, and there is also a role for a rich set of job and workplace controls.     

The family gap in wages: What wombmates reveal

We shed new light on the effects of having children on hourly wages by exploiting access to data on the entire population of employed same-sex twins in Denmark. Our second contribution is the use of administrative data on absenteeism; the amount of hours off due to holidays and sickness. Our results suggest that childbearing reduces female hourly wages but the principal explanation is in fact mothers’ higher levels of absence. We find a positive wage premium for fathers.     

All for one and one for all: A mechanism through which broad‐based employee stock ownership and employee‐perceived involvement practice create a productive workforce

Drawing on social identity theory, this research frames a multimediational model that delineates how broad‐based employee stock ownership (BESO) and employee‐perceived involvement practice in tandem yield a productive workforce at the organization level. In our theoretical model, we propose that social cohesion and voluntary turnover are collective attitudinal and behavioral outcomes resulting from the shared perception of we‐ness that employees experience through both participatory practices. Our path analysis of a multisource, time‐lagged dataset from 176 large U.S. companies revealed the sequential mediating roles of social cohesion and voluntary turnover between these organizational practices and labor productivity. Our theoretical claims and empirical evidence will contribute to a systematic understanding of how and why BESO and employee involvement leverage greater organizational productivity from employees.