Exploring different measures of wage flexibility in a developing economy context: the case for Turkey

In this paper we use Turkish household labor force data to address a number of conceptual issues pertaining to the wage curve, an empirically derived negative relationship between the real wage level and the local unemployment rate. First, we show that in developing economies where labor markets are prone to high degree of segmentation by skill level, local unemployment rates disaggregated by education provide more accurate measures of the degree of group-specific wage competition and hence yield more robust results of the wage curve analyses. Second, we estimate the wage curve using various definitions of the unemployment rate, including discouraged and marginally attached workers, and the long-term unemployment rate to explore the most relevant measure of local labor market tension in the wage setting process. We find that broader definitions of unemployment serve as a more effective reference point in measuring wage flexibility for women, whose attachment to the labor market is substantially weak in the Turkish context; while for men the official and long-term unemployment rates perform well. Finally, using quantile regression we show that wage responsiveness to unemployment cannot be assumed to be constant along the wage distribution. In the Turkish case, we find a higher unemployment elasticity of wages around the median segment of wage distribution. This effect is more pronounced for women.     

The Brazilian wage curve: new evidence from the National Household Survey

This paper reconsiders the Brazilian wage curve using individual data from the National Household Survey at 27 Federative Units over the period 2002–2009. We find evidence in favor of the Brazilian wage curve with an unemployment elasticity of ?0.08. We also find that males in Brazil are significantly more responsive to local unemployment rates (?0.13) than their female counterparts. In fact, we find that the unemployment elasticity for women is statistically insignificant. Applying gender-specific unemployment rates, the elasticity for men decreases to ?0.09, while the elasticity for women remains statistically insignificant. This paper also finds that the estimates for Brazilian wage curve are completely different for the case of formal and informal workers.     

Conflict in the labor market: Seniority rules and unemployment

This paper examines the macroeconomic implications of two labor-market institutions that play an important role in worker-management interactions: seniority-based layoffs and majority voting on wage proposals. Together, these make the median worker, rather than the marginal worker, the important decision maker for wage and employment outcomes. Since he is risk-averse, he will trade off higher wages for greater security of employment; therefore, the equilibrium level of unemployment will be much less than 50%, but higher than the conventional natural rate of unemployment. Median-worker behavior helps to explain both the greater frequency of excess supply than excess demand (59.4% versus 40.6% of the time since 1890) and the wage concessions of 1981–1983. A new Phillips curve is derived which incorporates systematic influences of the size of the labor force (to correct for the inappropriate measure of excess supply) and Tobin's “q” variable (to measure the risk of unemployment for the median worker). With U.S. data for 1957–1983, this new Phillips curve has a higher explanatory power than the traditional one. Additional forces that influence wages and employment in this setting are identified: firms have an incentive to bargain actively over wages rather than accept union demands passively and senior workers have a “social contract” with junior workers that reduces the extent to which the former exploit the latter.     

Wages,participation and unemployment in the economic transition of urban China1

Wages, participation and unemployment are major topics for researchers of the labour market. How have these measures evolved in the economic transition of urban China? Have they evolved in accordance with those in the Statistical Yearbook of China (produced by the National Bureau of Statistics, China) and previous studies? We find that the estimated wage level based on Urban Household Survey (UHS) data was higher than that in the Statistical Yearbook in earlier years, but the relationship has reversed since 1999. Our estimated participation rate is lower than that of Giles et al. (2006) but higher than Dong et al. (2007) and Maurer‐Fazio et al. (2007) . The analysis shows that the unemployment rate is lower than that estimated with the China Urban Labor Survey data in Giles et al. (2005) . Our estimation results on unemployment rates turn out to be more similar to those in Dong et al. (2007) but are different from those in Hu and Sheng (2007) . This analysis provides the first systematic comparison of the wage level from different sources, and supplements the existing estimates on participation and unemployment using a more representative dataset for urban China.     

Political‐Economic Regime and the Wage Curve: Evidence from Chile, 1957–96

This paper tests whether a wage curve—a negative relationship between the level of unemployment and the level of pay—existed in Chile during 1957–96. The analysis is divided into two periods. For 1957–73, during inward‐led development, we reject the existence of a wage curve. For 1974–96, when the economy opened, state‐run industries were privatised and labour rights weakened, we find a wage curve of ?0.08. Based on this finding we conclude that the unemployment–pay elasticity in the post‐reform period is similar to the ?0.07 to ?0.10 wage curve found in other western, capitalist countries. Disaggregating the analysis by group, we find that women, non‐university educated workers and public sector workers have suffered more from unemployment. Yet informal sector workers have not experienced pay drops as a result of unemployment, contradicting the hypothesis that the informal sector acts as a buffer during economic downturns.     

Pigou on business cycles and unemployment: an anti-gold-standard view

Abstract

This note examines A. C. Pigou's views on the practical issue of high unemployment in the 1920s. In his Industrial Fluctuations, Pigou emphasized that the monetary aspect of business cycles was much more important to fluctuations in unemployment than wage adjustment. In a journal article, however, he stated that major part of the high unemployment should be attributed to the failure of money wage adjustment. I argue that, on balance, Pigou attached greater importance to monetary problems than to the wage rigidity.     

Excess supply equilibria

This paper addresses a fundamental problem in economic theory: How can there be equilibria of the economic system where some commodity is in excess supply, yet that commodity's relative price shows no tendency to fall? Of course, the principal example of such a phenomenon is an economy experiencing a prolonged period of involuntary unemployment of the labor force during which there is no significant change in the real wage.In the following pages, I shall describe a two-commodity, general equilibrium model that has a continuum of unemployment equilibria, one for any given unemployment rate. The important feature of this model is that workers establish their wage rates in an attempt to maximize expected utility. The information upon which these wage setting decisions are based is provided by actual labor market transactions.Despite the voluntary nature of the wage setting decision, I shall argue that each equilibrium of this economy exhibits involuntary unemployment in the Keynesian sense. For there will always be another equilibrium with a lower real wage, a higher level of employment, and at which (at least when workers are risk neutral) each worker achieves a higher level of expected utility.     

Incidence and Duration of Unemployment Spells: Implications on the Wage Differentials of Part-Time and Full-Time Workers

This article analyzes the extent to which incidence of unemployment and duration of unemployment spells affect the wage differentials between full-time and part-time workers. The estimation results of a sample selectivity bias–adjusted wage equation reveal that high incidences of unemployment are associated with low wages for both full-time and part-time workers. However, the reduction in wages due to incidence of unemployment is larger for full-time workers in high-paid jobs than for their part-time counterparts. Duration of unemployment spells affects full-time and part-time workers differently. In general, longer unemployment spells tend to increase the wages of full-time workers but tend to depress the wages of part-time workers. Although the probability of unemployment is not a factor in explaining the wage differential, the duration of unemployment accounts for a substantial portion (about 66.6% in full sample) of the wage differential that exists between full-time and part-time workers.     

Discrimination and the unemployment durations of white and black males

In this study we develop a model to decompose the longer unemployment duration of blacks into discriminatory and non-discriminatory components. By extending Becker's theory of discrimination to job-search theory, the discriminatory component is seen to be the result of two separate effects. First, a white treatment advantage shortens the unemployment duration of whites because they receive more frequent and higher wage offers than would prevail in the absence of discrimination for working alongside blacks. Second, a black treatment disadvantage lengthens the jobless spell of blacks because blacks receive lower wage offers than would prevail without discrimination as discriminating employers extract quasi-rents from their labour. We estimate our model using date from the CPS Displaced Workers Survey. The results show that 3.81 of the 4.58 weeks longer unemployment spell for blacks is due to discrimination, with 3.11 weeks resulting from the white treatment advantage, and 0.7 weeks emanating from the black treatment disadvantage.     

Mr Keynes,the Classics and the new Keynesians: A suggested formalisation

Abstract

The paper suggests a new Keynesian model of the General Theory. A reduced form entails a diagram with three curves relating employment and the real wage, which represent the two fundamental classical postulates and the principle of effective demand. This diagram illustrates better than IS–LM the generality of Keynes's theory, clarifying the distinction between voluntary and involuntary unemployment. Other significant features are the role of the distribution of expected interest rates among heterogeneous agents, whether dispersed or concentrated, in shaping the LM curve, as well as the role of wage competitiveness constraints as a foundation of Keynes's relative wage hypothesis.     

Real Minimum Wage and Growth Theory: Simulations and Some Policy Results

Abstract

A Solow type two‐sector growth model is used to examine several issues related to growth and unemployment in a minimum wage economy. By simulating the model, we demonstrate that given the same percentage increase in wage rate, an economy with a higher capital–labor ratio is more likely to decay. More importantly, a tariff policy reduces the unemployment periods by 92% provided that the current capital–labor ratio is one‐sixth of that of the steady state capital–labor ratio. We assume that the first best policy of uniform wage subsidy is not politically feasible.     

Trade, technology, and unemployment: the role of endogenous skill formation

Abstract .  This paper analyses trade in an asymmetric  2 × 2 × 2  world, where the two countries ('Europe' and 'America') differ in their preferences towards wage inequality. Fair wage considerations compress wage differentials in both countries. European workers are more averse to wage inequality, and Europe is characterized by lower wage differentials and higher unemployment. Allowing for endogenous skill formation, the effects of a globalization shock, global technological change, and a change in the educational capital stock on skill premia and employment levels are derived. In contrast to a model with exogenous factor supplies, international wage and unemployment differentials are affected by global shocks.     

Unemployment and product market competition in a Cournot model with efficiency wages

This paper analyzes the impact of product market competition on unemployment, wage and welfare in a model where unemployment is caused by the efficiency wage consideration and oligopolistic firms compete in quantity. It is shown that while more intense competition in the product market increases output and reduces price, it does not necessarily lead to a lower unemployment rate or a higher wage for workers. Depending on the technologies, the relationship between the intensity of competition and the level of employment (respectively, wage, welfare) is not always monotonic, and, in some instances, has an inverted U‐shape.     

UNEMPLOYMENT,LABOR MARKET TRANSITIONS,AND RESIDUAL WAGE DISPERSION

It is commonplace in the debate on Germany's labor market problems to argue that low wage dispersion is a major reason for the high unemployment rate. This paper analyzes the relationship between unemployment and residual wage dispersion for individuals with comparable attributes. In the conventional neoclassical point of view, wages are determined by the marginal product of the workers. Accordingly, increases in union minimum wages result in a decline of residual wage dispersion and higher unemployment. A competing view regards wage dispersion as the outcome of search frictions and the associated monopsony power of the firms. Accordingly, an increase in search frictions causes both higher unemployment and higher wage dispersion. The empirical analysis attempts to discriminate between the two hypotheses for West Germany analyzing the relationship between wage dispersion and both the level of unemployment as well as the transition rates between different labor market states. The findings are not completely consistent with either theory. However, as predicted by search theory, one robust result is that unemployment by cells is not negatively correlated with the within‐cell wage dispersion.     

Redistributing Gains from Globalisation*

This paper analyses the effects of redistribution in a model of international trade with heterogeneous firms in which a fair‐wage effort mechanism leads to firm‐specific wage payments and involuntary unemployment. The redistribution scheme is financed by profit taxes and gives the same absolute lump‐sum transfer to all workers. International trade increases aggregate income and income inequality, ceteris paribus. If, however, trade is accompanied by a suitably chosen increase in the profit tax rate, it is possible to achieve higher aggregate income and a more equal income distribution than in autarky, provided that the share of exporters is sufficiently high.     

The Turkish wage curve: Evidence from the Household Labor Force Survey

This paper examines the Turkish wage curve using individual data from the Household Labor Force Survey including 26 NUTS-2 regions over the period 2005-2008. We find an unemployment elasticity of −0.099, with a higher elasticity for younger, less educated, less experienced and female workers.     

The Impact of Income Taxation on the Labor Supply of Part-time and Full-time Workers

This paper estimates the effect of income taxation on the labor supply of part-time and full-time workers in the United States. Using a model that incorporates the endogeneity of the net wage rate and the virtual income, and correcting for self-selection into part-time and full-time jobs, the results indicate that part-time workers are relatively more responsive to changes in income tax than full-time workers. Estimated wage elasticities are relatively larger for part-time than for full-time workers.The simulation results indicate that income tax has a disincentive effect on both part-time and full-time workers, with part-time and full-time workers reducing their labor supply by 0.87 and 0.58 hours, respectively, if a 5% tax is imposed. However, the percentage reduction in hours of work is very small, and a tax policy may have little effect on the labor supply of workers.The results seem to suggest that female and black part-time workers are more likely to drop out of the labor force at higher levels of income tax. It also tests the hypothesis that the labor supply behavior of parttime and full-time workers differs.The test results indicate that the determinants of the labor supply of part-time workers are different from those of full-time workers. It is noted that there is a significant difference between the labor supply of male part-time and female parttime workers, as well as between the black part-time and white part-time workers. In order to reduce voluntary unemployment in market activities among married females and blacks, the government can encourage part-time work by sponsoring legislation or instituting a scheme that will allow part-time workers to pay relatively less in payroll taxes.     

Unemployment consequences of an aging population: an application of insider-outsider theory

The model developed in this paper asserts that unions attach greater weight to the wishes of older workers than they do to the wishes of young workers, and wages and employment are determined by efficient bargains. Then, the wages of old workers are always higher than the wages of young workers regardless of productivity and relative supply. Employment is influenced mainly by outside opportunities. In the plausible case where old workers cannot easily get senior jobs outside their firm, junior unemployment is higher than senior unemployment. A seemingly robust result is that an increase in the ratio of old to young workers (population aging) reduces the unemployment rate and wage rate of both groups in the population.     

经济新常态下就业困难群体失业趋势研究*

本文探讨了宏观经济运行新特征对就业困难群体失业的影响。研究发现城镇失业与平均工资显著正相关,与财政支出、一年期贷款利率和平均受教育年限显著负相关,与经济增长率和全要素生产率等无显著相关性。“4050”人员、刚毕业大学生和青年农民工是三类重点困难群体,失业趋势呈现长期失业加重、失业转就业难度增大和短期失业淤积。本文建议将“就业困难群体就业比较充分”作为就业工作的重要目标,多措并举,妥善应对新常态下的失业问题。     

The welfare costs of union wage compression

This paper calculates the quantitative significance of the welfare costs of union wage compression. This is done in a dynamic general equilibrium model with overlapping generations where agents choose both schooling (human capital) and assets (physical capital). The labor market in this model is characterized as a right-to-manage contract, which allows unions to compress wage differentials between high- and low-skilled workers, by implementing a binding minimum wage. This paper shows that when labor markets are competitive even low levels of wage compression lead to large welfare losses, since wage compression creates costly unemployment among low-skilled workers. The effect of wage compression on the supply of skilled labor, however, is rather small, since the disincentive effect of a lower, high-skilled wage is, to a large extent, offset by a lower opportunity cost of schooling due to higher unemployment.