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.     

The impact of minimum wages on wages,work and poverty in Nicaragua

In this paper we use an individual- and household-level panel data set to study the impact of changes in legal minimum wages on a host of labor market outcomes including: a) wages and employment, b) transitions of workers across jobs (in the covered and uncovered sectors) and employment status (unemployment and out of the labor force), and c) transitions into and out of poverty. We find that changes in the legal minimum wage affect only those workers whose initial wage (before the change in minimum wages) is close to the minimum. For example, increases in the legal minimum wage lead to significant increases in the wages and decreases in employment of private covered sector workers who have wages within 20% of the minimum wage before the change, but have no significant impact on wages in other parts of the distribution. The estimates from the employment transition equations suggest that the decrease in covered private sector employment is due to a combination of layoffs and reductions in hiring. Most workers who lose their jobs in the covered private sector as a result of higher legal minimum wages leave the labor force or go into unpaid family work; a smaller proportion find work in the public sector. We find no evidence that these workers become unemployed.Our analysis of the relationship between the minimum wage and household income finds: a) increases in legal minimum wages increase the probability that a poor worker's family will move out of poverty, and b) increases in legal minimum wages are more likely to reduce the incidence of poverty and improve the transition from poor to non-poor if they impact the head of the household rather than the non-head; this is because the head of the household is less likely than a non-head to lose his/her covered sector employment due to a minimum wage increase and because those heads that do lose covered sector employment are more likely to go to another paying job than are non-heads (who are more likely to go into unpaid family work or leave the labor force).     

Wages,non-wage characteristics,and predominantly male jobs

This paper estimates the wage premium associated with working in predominantly male jobs. It also examines whether this wage premium is greater than the compensation workers demand for the less desirable non-wage characteristics of such jobs. The coefficients of the change in the proportion of men in an occupation on the change in wages for quits and layoffs provide opposing biased estimates of the wage premium; because workers who voluntarily quit move to better matches, but those that are laid off accept jobs from the representative distribution of job offers. Specifically, when the premium paid over- (under-)compensates for undesirable work characteristics, the quit estimate is a downward (upward) biased estimate of the wage premium, while the layoff estimate is biased upward (downward). Results from the U.S. National Longitudinal Survey of Youth (NLSY) and the U.S. Panel Study of Income Dynamics (PSID) indicate that: (1) the estimated bounds of the wage premium are large; and (2) the wage premium overcompensates for the non-wage characteristics of male jobs.     

Performance Pay and Offshoring

In this paper, we construct a North–South general equilibrium model of offshoring, highlighting the nexus among endogenous effort‐based labor productivity and the structure of wages. Offshoring is modeled as international transfer of management practices and production techniques that allow Northern firms to design and implement performance compensation contracts. Performance–pay contracts address moral hazard issues stemming from production uncertainty and unobserved worker effort. We find that worker effort augments productivity and compensation of those workers assigned to more offshorable tasks. An increase in worker effort in the South, caused by a decline in offshoring costs, an increase in worker skill, or a decline in production uncertainty in the South, increases the range of offshored tasks and makes workers in the North and South better off. An increase in Southern labor force increases the range of offshored tasks, benefits workers in the North, and hurts workers in the South. International labor migration from low‐wage South to high‐wage North shrinks the range of offshored tasks, makes Northern workers worse off and Southern workers (emigrants and those left behind) better off. Higher worker effort in the North, caused by higher worker skills or lower degree of production uncertainty, decreases the range of offshored tasks and benefits workers in the North and South.     

Wages and prices: Are workers fully compensated for cost of living differences?

This paper investigates the equilibrium relationship between wages and prices across labor markets. Of central interest is the extent to which workers receive higher wages to compensate for differences in the cost of living. According to the spatial equilibrium hypothesis, the utility of homogenous workers should be equal across labor markets. This implies that controlling for amenity differences across areas, the elasticity between wages and the general price level across areas should equal one, at least under certain conditions. I test this hypothesis and find that the predicted relationship holds when housing prices are measured by rents and the general price level is instrumented to account for measurement error. When housing prices are measured by housing values, however, the wage-price elasticity is significantly less than one, even using instrumental variables. Rents reflect the price paid for housing per unit of time and are arguably the superior measure. Thus, findings in this essay provide support for the full compensation hypothesis. These findings also have important implications for researchers estimating the implicit prices of amenities or ranking the quality of life across areas.     

Investment, expropriation, and unionization

In this paper, I examine an economy where output is produced from labor, capital and public services, and where firms and labor unions bargain over labor conditions and lobby the government over union bargaining power and public services. I compare three institutional cases: (a) competitive wage settlement, (b) bargaining over wages and employment, and (c) bargaining over wages only. I show that in cases (a) and (b) the government expropriates investment rents, but right-to-manage bargaining (c) protects investors from this expropriation.      

Unemployment and compensating wages: an analysis of shift work

Compensating wages have been documented for a number of job attributes including working non-standard hours. Using data that aggregates across occupations, our analysis confirms a wage premium for working night shifts. However, the compensating wage is greater in areas where unemployment is low, suggesting that employers are less pressured to compensate for night shifts when employment opportunities are relatively scarce. If this result holds for other undesirable work characteristics, such as risk of death on the job, then weak labor markets will have lower compensating wages in general.     

On the structure of unemployment benefits in shirking models

An increase in unemployment compensation is commonly argued to raise unemployment in a shirking model of efficiency wages. This prediction is based on the assumption of a uniform benefit level. However, 32+13if differential benefits for shirkers and non-shirkers exist, higher unemployment compensation for non-shirkers will reduce unemployment. In the long-run, this effect is amplified. Therefore, not only the level of benefits influences unemployment in an efficiency wage economy but also eligibility conditions, the effectiveness with which benefits are administered and, more generally, the institutional design of the unemployment insurance system.     

Wages,implicit contracts,and the business cycle: Evidence from a European panel

We study the joint behavior of hours and wages over the business cycle in a unique panel of 13 European countries, and document significant history dependence in wages. Workers who experience favorable market conditions during their tenure on the job have higher wages, and work fewer labor hours. Unobserved differences in productivity, such as varying job quality, or match-specific productivity are not likely to explain this variation. The results instead point to the importance of contractual arrangements in wage determination. In economies with decentralized bargaining practices, such arrangements resemble self-enforcing insurance contracts with one-sided commitment (by the employer). On the other hand, in countries with strong unions and centralized wage bargaining, wage behavior is better approximated by full-commitment insurance contracts. The co-movement of hours and wages further confirms a contractual framework with variable worker hours. Despite the strong prevalence of contracts in Europe, however, the elasticity of labor supply is considerably smaller compared to the U.S. labor market.     

Foreign ownership,human capital,and the structure of wages in Japan

We examine the differences in the structure of wages between domestic and foreign-owned establishments in Japan. We use high-quality datasets from the Japanese government and construct a large employer–employee matched database consisting of 1 million workers in 1998. Our results confirm that foreign-owned establishments in Japan pay higher wages. We estimate that one percentage increase in foreign-ownership share of equity raises wages by 0.3%. We surmise that this foreign-ownership wage premium can be explained, at least in part, by compensating wage differentials. Workers in foreign-owned establishments are not protected by lifetime employment. They receive higher compensation for being exposed to higher risk and forfeiting their employment security. We also find that in foreign-owned establishments, wages are determined more by general skills, and less by firm-specific skills. These effects become more pronounced among establishments with a higher share of foreign ownership. The gender wage gap is considerably smaller among foreign establishments. Given the lack of long-term prospects for women in the Japanese labor market, foreign-owned establishments may be one source of ‘brain drain’ for highly skilled women there.     

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,wages and employment in various sectors in Honduras

This paper contributes to our understanding of the impact of minimum wages on labor markets of developing countries, where there are often multiple minimum wages and compliance is weak. We examine how changes in more than 22 minimum wages over 1990–2004 affect employment, unemployment and average wages of workers in different sectors, defined by coverage under the legislation. The evidence suggests that minimum wages are effectively enforced only in medium and large-scale firms, where a 1% increase in the minimum wage leads to an increase of 0.29% in the average wage and a relatively large reduction in employment of ? 0.46%. We find that public sector wages emulate minimum wage trends but the higher cost of labor does not reduce employment there. There are no discernable effects of minimum wages on the wages of workers in small-firms or the self-employed; yet, higher minimum wages may create more unemployment. We conclude that (even under our upper bound estimate of the effect on the wages of workers) the total earnings of workers in the large-firm covered sector fall with higher minimum wages in Honduras, which warrants a policy dialogue on the structure and level of minimum wages.     

Dualism in the German Labor Market?A Nonparametric Analysis with Panel Data

A bstract . Orthodoxy in economics gives pride of place to the hypothesis of compensating differentials. Applied to job quality criteria, such as wage levels, job stability, and wage growth, the compensating differentials hypothesis implies that negative or positive job quality characteristics should— ceteris paribus —rarely coincide. Originating in the late 1960s from studies of American inner-city labor markets, dualist labor market theory has raised doubts about this assumption. At its core, dualist analysis proposes that a dualism exists between a primary' labor market where "jobs possess several of the following traits: high wages, good working conditions, employment stability and job security, equity and due process in the administration of work, and chances for advancement" and a secondary market where jobs "tend to involve low wages, poor working conditions, considerable variability in employment, and little opportunity to advance" (Doeringer and Piore 1971). In the 1980s, there were several attempts to apply dual or segmented labor market theory to European economies, including the German labor market. The mixed findings of these analyses have cast doubt upon the transferability of dualist theory to these contexts.     

Wage equations,wage curves and all that

This paper is concerned with the relationship between wages and unemployment. Using UK regions and individuals as the basis for our analysis, the following questions are investigated. First, is the wage equation a relationship between unemployment and wages or wage changes? Second, can we identify the relationship completely by looking at regional wages and regional unemployment or do regional wages depend on aggregate unemployment as well? Third, can we identify an upward sloping cross-section relationship between wages and unemployment corresponding to a zero migration condition? Finally, are wages influenced only by the current state of the labour market or do contracts lead to wages depending on labour market conditions in the last boom or upon entry into the job?     

Equal-treatment policy in a random search model with taste discrimination

We consider a search model of the labor market with two types of equally productive workers and two types of firms, discriminators and non-discriminators. Without policy intervention, there is wage dispersion between and within the two worker groups, but all wage differences become negligible when the taste for discrimination is small. We analyze the effect of an equal-pay policy, both in combination with affirmative action and without. When equal opportunity of hiring cannot be enforced, wage dispersion increases and wages for minority workers fall substantially relative to laissez faire. Sometimes also the wage gap between worker groups widens in response to the policy.     

Economics of personnel and human resource management

The new economics of personnel and human resource management is analysed, including its current prominence as well as its historical antecedents. The economic paradigm as applied to personnel and human resource economics is illustrated through a variety of examples in the personnel area. These involve economic phenomenon (e.g., fixed hiring costs, asymmetric information, option values) highlighting their implications for personnel issues, as well as personnel phenomenon (e.g., deferred compensation, pensions, mandatory retirement) highlighting their economic rationale. Other phenomenon that otherwise seem difficult to explain or paradoxical are analysed including: superstar salaries; long-hours and overtime coexisting with unemployment and underemployment often within the same organisation; the reluctance of seemingly risk averse workers to accept small wage cuts to avoid the possibility of a layoff; the payment of fringe benefits that may not be valued by many employees; the “regular” hiring of temporary workers when permanent workers are available; egalitarian pay structures and fairness in compensation; the persistent reporting of vacancies on the part of firms but a reluctance to raise wages to fill those vacancies; the use of piece rates in some jobs and salary structures that are based on relative ranking of workers in other jobs; and tenure or “up-or-out” rules where people who are not promoted are required to leave rather than work for lower pay. The concluding section focuses on elements that are common across these applications.     

Congestion, Land Use, and Job Dispersion: A General Equilibrium Model

In dispersed cities, congestion tolls would drive up central wages and rents and would induce centrally located producers to want to disperse closer to their workers and their customers, paying lower rents and realizing productivity gains from land to labor substitution. But the tolls would also induce residents to want to locate more centrally in order to economize on commuting and shopping travel. In a computable general equilibrium model, we find that the centralizing effect of tolls on residences dominates on the decentralizing effect of tolls on firms, causing the dispersed city to have more centralized job and population densities. Under stylized parameters, we find that efficiency gains from levying congestion tolls on work and shopping travel are 3.0% of average income. About 80% of such gains come from road planning and 20% from tolls.     

How do European firms adjust their labour costs when nominal wages are rigid?

Although workers' nominal wages are seldom cut, firms have multiple options available if they require adjustments in their wage bills. We broaden the analysis of relative (in)flexibility in labour costs by investigating the use of other margins of labour cost adjustment at the firm level beyond base wages. Using data from a unique survey, we find that European firms make extensive use of other components of compensation to adjust the cost of labour. Interestingly, firms facing base wage rigidity are more likely to use alternative margins of labour cost adjustment; therefore there appears to be some degree of substitutability between wage flexibility and the flexibility of other cost components. Changes in bonuses and non-pay benefits are some of the potential margins firms use to reduce costs. We also show how the margins of adjustment chosen are affected by unionisation and firm and worker characteristics.     

The efficiency of training and hiring with intrafirm bargaining

This paper demonstrates that firms hire and train workers efficiently in a matching and intrafirm bargaining economy when the Hosios condition holds and returns to scale are constant. This conclusion stands in contrast to the prevailing view that training costs are a source of inefficiency in imperfect labor markets. The efficiency of the competitive economy relies on the ability of large firms to take into account the negative impact of the training rate on the wages negotiated inside the firm through intrafirm bargaining: untrained workers accept a wage reduction in compensation for potential training that is accessible only following employment. This intrafirm bargaining process solves efficiency problems associated with training costs that would otherwise lead to inefficient hiring and training decisions. This conclusion holds true for both specific and general human capital.