Market wages,reservation wages,and retirement decisions

The paper is an empirical cross-section study of the retirement decisions of American white men between the ages of 58 and 67, predicated on the theoretical notion that an individual retires when his reservation wage exceeds his market wage. Reservation wages are derived from an explicit utility function in which the most critical taste parameter is assumed to vary both systematically and randomly across individuals. Market wages are derived from a standard wage equation adjusted to the special circumstances of older workers. The two equations are estimated jointly by maximum likelihood, which takes into account the potential selectivity bias inherent in the model (low-wage individuals tend to retire and cease reporting their market wage). The model is reasonably successful in predicting retirement decisions, and casts serious doubt on previous claims that the social security system induces many workers to retire earlier than they otherwise would. The normal effects of aging (on both market and reservation wages) and the incentives set up by private pension plans are estimated to be major causes of retirement.     

Unemployment,wages and pensions

Empirical evidence has shown the existence of a negative relationship between the rates of unemployment and real wages. If pensions are computed according to the wages that workers have contributed, then the unemployment rates during working life may also influence the pensions to which they are entitled. Using data from 2005 to 2012 for the Spanish social security system, we estimate that the unemployment elasticity of real pension is ?0.135. A 1% increase in unemployment rate is associated with a reduction in pension equal to 0.135%. In ‘normal times’, this value could be considered modest, but the Great Recession has increased dramatically the rate of unemployment. In 2012, the rate of unemployment in Spain had increased to 25.7% and in 2015, it had diminished to 20.9%. It is estimated that unemployment rate will not be returned to figures existing before the crisis until middle of the next decade. Moreover, the current reforms in social security systems could interact with the future effects of the current rates of unemployment and cause future pensions to be significantly lower than those estimated by individuals. The economic welfare of the future cohorts of retirees would then be significantly worsened.     

Coordination, matching, and wages

We analyse the coordination problem in the labour market by endogenizing the matching function and the wage share. Each firm posts a wage to maximize the expected profit, anticipating how the wage affects the expected number of applicants. In equilibrium workers apply to firms with mixed strategies, which generate coordination failure and persistent unemployment. We show how the wage share, unemployment, and the welfare loss from the coordination failure depend on the market tightness and the market size. The welfare loss from the coordination failure is as high as 7.5 per cent of potential output. JEL Classification: C78, J64
Les auteurs analysent le problème de la coordination dans le marché du travail en endogénéisant la fonction 'arrimage et la part des revenus qui va aux salaires. Chaque entreprise définit le niveau de salaire qui maximise ses profits anticipés, en tenant compte de l'effet de ce niveau de salaire sur le nombre des applications qu'elle peut anticiper. De même, les travailleurs font application auprès d'une entreprise à un salaire donné en tenant compte d'une certaine relation d'équivalence entre niveau de salaire et probabilité d'obtenir l'emploi. Voilà qui engendre incoordination et chômage persistant. On montre que la part des revenus qui revient aux salaires, le niveau de chômage, et les pertes de bien-être attribuables au manque de coordination dépendent de la taille du marché et du degré de rareté de la main d'oeuvre. Les pertes de bien-être attribuables au manque de coordination correspondent à quelques 7,5 pour-cent de la production potentielle.     

Alcohol consumption,smoking and wages

The good health of an individual is a combination of uncontrollable factors that includes genetics and random events and controllable factors through the regulation of activities such as smoking and drinking. Since the work of Grossman in the 1970s, a significant relationship between health and earnings has been predicted. In this present paper the 1995 Australian National Health Survey is used to examine simultaneously the effects of drinking and smoking on wages. To model the interaction of smoking with alcohol consumption separate models are fitted for smokers and nonsmokers. These models account for potential selectivity bias resulting from the decision to smoke, and endogeneity arising from a potential causal relationship between earnings and alcohol consumption.     

Bargaining, binding contracts, and competitive wages

In a model where many workers bargain with one firm and sign binding contracts, we show existence of a stationary subgame perfect equilibrium. If the production function satisfies decreasing returns, each worker receives a share of his marginal product (treating all other workers as employed) in equilibrium. Thus, wages are competitive. This is in contrast to Stole and Zweibel (1996, Rev. Econ. Stud. 63, 375–410), who assume that contracts are non-binding and find that the payoff of a worker is a weighted average of the inframarginal contributions. Hence, binding contracts imply lower wages than non-binding contracts.     

Reservation wages, market wages and unemployment: Analysis of individual level panel data

Using individual level panel data, we analyse the divergence between the reservation wages of individuals who are out of work and their predicted market wages, focusing upon identifying the factors that influence the potential divergence. In addition, using propensity score matching techniques, we explore the implications of such divergences for future employment and wages. Our findings suggest that having reservation wages that are high relative to the predicted market wage influence both future employment and future wages.     

In-school labour supply,parental transfers,and wages

In many industrialised countries, teenagers have a significant spending power, and they are important customers for specialised industries. The income of teenagers still in full time education comes from two major sources: parental pocket money and earnings from part-time jobs. Little is known about the way these sources interact, and how they depend on parental, school and family characteristics. In this paper, we analyse labour supply of 16 year old British teenagers together with the cash transfers made to them by their parents. We first develop a theoretical model, where labour supply and transfers are jointly determined. We then estimate labour supply and transfers jointly, using unique data on labour supply of teenagers, the wages they receive, and the transfers from their parents. We show how these two processes depend on each other, and how transfers and labour supply react to changes in wages. We are grateful to the Leverhulme Trust for financial support for this research, which has also benefited from support to the IFS as a Designated Research Centre of the ESRC. We thank Murali Agastya, Richard Blundell, Ian Preston, Frank Windmeijer, and two anonymous referees and the editor Bernd Fitzenberger for useful comments.     

Relative wages, labor specialization and bargaining patterns

The goal of this paper is to study the effects of centralized and decentralized bargaining patterns on wage inequality when there are two different types of labor, skilled and unskilled. We present two models where labor is specialized between firms, that is, there are two types of firms, each one employing one type of labor. We show that the revenue shares of the production factors in each type of firm and the union power are crucial determinants of the relative wage. In contrast, the relative expected wage is the same across models and bargaining patterns.     

Farm income,market wages,and off-farm labour supply

In most developed countries we observe an increasing share of part-time farming at the expense of full-time farmers. In the present paper, we develop a theoretical labour supply model which accounts for the specific decision problem of a farmer. The empirical analysis uses the ordered probit and a Tobit model to explain labour supply behaviour for a sample of farm households in Upper Austria. Farm size, household characteristics, as well as education significantly influences off-farm labour supply behaviour. The obtained wage elasticities for male farmers are comparable in magnitude to those obtained in labour supply studies for adult females or elderly people.

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Zusammenfassung Nebenerwerbslandwirtschaft entwickelt sich immer mehr zur vorherrschenden Form der Erwerbstätigkeit von Landwirten. Die Erwerbsentscheidung zwischen Voll-, Zu- und Nebenerwerb wird im Rahmen eines statischen Arbeitsangebotsmodells untersucht und mit Hilfe eines Ordered-probit-bzw. eines Tobit-Ansatzes für 1.842 landwirtschaftliche Haushalte in Oberösterreich getestet. Das Arbeitsmarktverhalten von Landwirten ist gekennzeichnet durch eine hohe Lohnelastizität vergleichbar den Ergebnissen für das Erwerbsverhalten von Personen auf dem sekundären Arbeitsmarkt. Darüber hinaus läßt sich ein signifikanter Einfluß der Betriebsgröße, der Struktur des landwirtschaftlichen Haushaltes sowie der Art und des Umfangs der Ausbildung des Betriebsleiterehepaares erkennen.

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We are grateful to the Agrar- und Forstrechtsabteilung der oberösterreichischen Landesregierung for giving us access to the data set, and E. Fürst for helpful assistance in data preparation. We are indebted to the participants of the first annual conference of the Austrian Association of Agricultural Economists (ÖGA) held in Vienna in October 1991 and especially to R. Winter-Ebmer, M. Hofreither, and three anonymous referees for valuable comments.     

Full wages,part-time employment and the minimum wage

The economic effects of the minimum wage have become increasingly ambiguous. Historically, economists have asserted that increases in the minimum wage result in increases in unemployment. This relationship has been challenged recently by Card and Krueger, Katz and Krueger, and Card. These authors have provided empirical evidence that seems to indicate that there is no relationship between various economic variables (such as level of employment, and product price, among others) and the minimum wage. In addition, these authors have not provided a cogent presentation of the effects of the minimum wage on part-time employment. This study examines, from a theoretical standpoint, the effects of the minimum wage on employment. Furthermore, we emphasize the distinction between money wages and full wages; and the role that part-time employmentplays in the analysis. After incorporating these factors into a theoretical presentation, we provide empirical evidence by way of an OLS regression. We conclude that firms respond to increases in the minimum wage by altering the level of part-time employment. By doing this, firms are able to absorb the minimum wage increase because part timers receive fewer fringe benefits.     

Market interconnection and wages

We show that wage behavior as well as the skilled–unskilled wage gap depend on elasticity of import demand. Although, our analysis is in the spirit of the Stolper–Samuelson theorem, factor intensity plays no role in our results.     

Agglomeration and fair wages

Abstract.  This paper implements a fair wage constraint into an analytically tractable core-periphery agglomeration model. This enables us to study the role of imperfect labour markets for the pattern of agglomeration. In the short run, a marginal increase in fair wage preferences leads to an unambiguous compression of the national factor price differential between skilled and unskilled labour, involving an increase in the unemployment rate of unskilled workers. In the long run, this mechanism renders full dispersion of an unstable equilibrium already at higher trade costs than in perfect labour markets. There is a tendency for fair wage preferences to enforce agglomeration.     

Real wages,inflation and labour productivity in Australia

This article presents an analysis of real wages, inflation and labour productivity interrelationships using cointegration, Granger causality and, most importantly, structural change tests. Applications of tests to Australian data over the 1965 to 2007 period corroborate the presence of a structural break in 1985 and show that a 1% increase in manufacturing sector real wages led to an increase in manufacturing sector productivity of between 0.5% and 0.8%. Comparable estimates for the effect of inflation on manufacturing sector productivity have limited statistical significance. Granger causality test results suggest that real wages and inflation both Granger cause productivity in the long run.     

Real wages,real interest rates,and the Phillips curve

This article argues that any analysis of a Phillips curve should include the real interest rate in addition to inflation and real wages as any changes in the interest rate changes the labour–capital input mix in the production process leading to a change in the level of employment in the economy. To justify this argument a Phillips curve model is developed, which includes the real interest rate in addition to inflation and real wages. After the diagnosis of the time series properties of the data, an error correction model is developed and estimated using a set of US annual data from 1948 to 1996. The estimated parameters of the model do suggest that one should really take into consideration of the real interest rate while analysing the Phillips curve. A non-nested test (F-test) also suggests that the Phillips curve model with real interest rate as an additional variable performs better than the conventional method that does not include the real interest rate.     

Romanians,Hungarians and their wages,in transition,in Romania

Legally binding treaties or memorandums have been used over time to regulate the issue of national borders of many European countries. As a result, relatively large groups of people have become ethnic minorities in other countries. They may conserve their ethnic identities, and therefore their children may accumulate ethnic human capital (e.g., language, culture, and religion) in addition to the general human capital of the country. Therefore, they can get access to an appropriate occupation linked by tradition or other factors to their ethnic group. This paper uses estimates from a selection model with an endogenous switch among three broad types of occupational groups to analyze the composition of the wage gap between Romanians and ethnic Hungarians in Romania before and during the transition from a planned to a market economy. The results suggest that the institutional settings of the controlled economy allowed Romanians to work in occupations that gave them the best returns, while the changes during the transition years allowed ethnic Hungarians to work in occupations that gave them the best returns.     

Staggered wages,financial frictions,and the international comovement problem

Standard international real business cycle models often generate negative cross-country correlations in labor and investment. The data, however, display positive correlations. This paper studies the effect of real wage rigidity and financial frictions on international comovement. We find that staggered wages mainly improve the cross-country correlation of labor, while financial frictions improve investment comovement. However, each friction alone cannot account for the magnitude of international correlations of either variable. When the two imperfections are introduced together, the effect of each friction endogenously reinforces the other and the model generates realistic correlations in both variables.     

Marriage, BMI, and wages: a double selection approach

Obesity rates have been rising over the past decade. As more people become obese, the social stigma of obesity may be reduced. Marriage has typically been used as a positive signal to employers. If obese individuals possess other characteristics that are valued in the labour market they may no longer face a wage penalty for their physical appearance. This paper investigates the relationship between marital status, body mass index (BMI), and wages by estimating a double selection model that controls for selection into the labour and marriage markets using waves 14 and 16 (2004 and 2006) of the British Household Panel Survey. Results suggest that unobserved characteristics related to marriage and labour market participation are causing an upward bias on the BMI coefficients. The BMI coefficient is positive and significant for married men only in the double selection model. The findings provide evidence that unobserved characteristics related to success in the marriage and labour market may influence the relationship between BMI and wages.     

Union bargaining power, relative wages, and efficiency in Canada

We use a computable general equilibrium model incorporating trade unions, efficient Nash contracts, existing distortions, and international trade to measure the deadweight loss in Canada arising from the ability of unions to raise wages above competitive levels. The model incorporates two features new to CGE analysis: parameterization of union bargaining power and variations in union preferences. Estimates indicate the deadweight loss to be no more than 0.04 per cent of GNP. However, the small aggregate effect masks considerable adjustments at the industry level, in imports and exports, and in the distribution of income. Adjustments are also larger with employment-oriented unions.
Pouvoir de négociation des syndicats, salaires relatifs et efficacité au Canada. Les auteurs utilisent un modèle d'équilibre général calculable qui prend en compte les syndicats ouvriers, des contrats efficients à la Nash, les distorsions existantes, et le commerce international pour mesurer les pertes de bien-être au Canada attribuables au fait que les syndicats engendrent des niveaux de salaires au dessus des niveaux concurrentiels. Le modèle incorpore deux éléments inédits: la paramétrisation du pouvoir de négociation des syndicats et les variations dans les préférences des syndicats. Les résultats indiquent que les pertes de bien-être ne dépassent pas 0,04 pourcent du PIB. Cependant, ce petit effet agrégé masque des ajustements substantiels au niveau de l'industrie, dans les importations et exportations, et dans la répartition des revenus. Les ajustements sont aussi plus importants quand les syndicats mettent l'accent sur l'emploi.     

Sector-specific minimum wages,economic growth,and some policy implications

Economic growth is introduced in the urban unemployment model of Harris and Todaro. It is shown that in the steady state, the optimal savings ratio is greater than the golden rule savings ratio under full employment. Also the optimal proportion of total investment allocated to the urban sector is not necessarily higher than the optimal proportion under full employment.