Piece Rates, Fixed Wages and Incentives: Evidence from a Field Experiment

Data from a field experiment are used to estimate the gain in productivity that is realized when workers are paid piece rates rather than fixed wages. The experiment was conducted within a tree-planting firm and provides daily observations on individual worker productivity under both compensation systems. Unrestricted statistical methods estimate the productivity gain to be 20%. Since planting conditions potentially affect incentives, structural econometric methods are used to generalize the experimental results to out-of-sample conditions. The structural results suggest that the average productivity gain, outside of the experimental conditions, would be at least  21.7  %.     

Employment Effects of Minimum Wages: Evidence from a Quasi-Experiment

To estimate the impact of raising the minimum wage on employment, this article uses a natural experiment, arising from six increases in the Western Australian statutory minimum wage during the period 1994–2001. Relative to the rest of Australia, the employment to population ratio in Western Australia fell following each of the six rises, twice by a statistically significant margin. Aggregating the increases, the elasticity of labour demand with respect to the Western Australian statutory minimum wage is found to be ?0.13.     

Labor Regulations,Employment and Wages: Evidence from India's Apparel Sector

While India is among the world's largest producers and exporters of apparel products, the sector has not performed to its potential. This study analyzes why this might be so from the perspective of the structure of production in the sector, the most striking aspect of which is a firm size distribution heavily dominated by small firms. Using nationally representative firm‐level and labor force survey data, we argue that the dominance of firms operating at scales too small to apply modern production and management technologies is one proximate reason for India's relative underperformance. Further, we note that India's labor regulations and the associated enforcement regime are important policy drivers of Indian firms' tendency to avoid placing “too many workers under one roof”.     

Workplace Characteristics and Their Effects on Wages: Australian Evidence

Using data, from the 1995 Australian Workplace Industrial Relations Survey, which match individual employees to the firms and workplaces at which they are employed, this paper examines the relative importance of both individual and workplace characteristics for wages. Results from the estimation of 'effects' models indicate that workplace-specific effects are important, explaining 39 per cent of the variation in individual log hourly wages. Estimation of a model including both individual-level and workplace-level variables (and using a random effects approach) identified workplace size, foreign ownership, the significance of export markets, the gender composition of the workforce, workplace union organisation, the incidence of shift work, and location as the most important workplace-level influences on wages.     

Minimum Wages and Firm Productivity: Evidence from Vietnamese Manufacturing Firms

ABSTRACT

This paper empirically examines the minimum-wage impact on firm productivity. Using a detailed Vietnamese firm-level dataset from 2010 through 2015, the regression results suggest that firms raise their labor productivity, total factor productivity, capital intensity and revenue in response to increased minimum wage standards. Firms that pay their workers below the minimum wage react more positively in raising their labor productivity than high-wage firms. Minimum wages has had a more pronounced impact on firms’ labor productivity, total factor productivity and capital intensity since the uniform wage rate was introduced for both domestic private and foreign-invested enterprises in 2012.     

Persistence of Nominal and Real Variables under Fixed and Floating Exchange Rates: Evidence from Greece, 1954–1992

This paper examines the persistence of Greek nominal and real variables under the Bretton Woods system and the post-1975 floating rate system. Two non-parametric measures of persistence are employed. The first is Cochrane's variance ratio test, put forward in 1988, which allows the decomposition of a series into a random walk and a stationary component; and the second is the modified rescaled range statistic, put forward by Lo in 1991, which tests for the existence of long-term dependence. Empirical findings suggest that some of the variables under consideration exhibit a higher persistence under floating while for the rest of them the tests do not indicate any significant change.     

Unobserved Heterogeneity,Exit Rates,and Re‐Employment Wages

Exit rates from unemployment and re‐employment wages decline over a period of unemployment, after controlling for worker observable characteristics. We study the role of unobserved heterogeneity in an economy with asymmetric information and directed search. We show that the unique equilibrium is separating and that skilled workers have more job opportunities and higher wages. The composition of the unemployed varies with the duration of unemployment, so average exit rates and wages fall with time. The separating equilibrium relies on performance‐related pay schemes and the ability of firms to commit to renting an input that is complementary to worker skills.     

Incentives and Transactions Costs Within the Firm: Estimating an Agency Model Using Payroll Records

We estimate an agency model using the payroll records of a copper mine that paid a production bonus to teams of workers. We estimate the cost of incomplete information due to insurance and incentives considerations and the inefficiency caused by the simple form of the incentive contract itself. At the estimated parameters the cost of worker risk aversion (insurance) is of similar magnitude to moral hazard (incentives). Overall, incomplete information accounted for one-half of the bonus system's inefficiency relative to potential full information profits. The other half is attributed to the bonus system's inefficient generation of incentives and insurance relative to the optimal incentive contract.     

Interest Rates, Stock Returns and Credit Spreads: Evidence from German Eurobonds

We investigate daily variations in credit spreads on investment‐grade Deutschemark‐denominated Eurobonds during the challenging 1994–1998 period. Empirical results from a Longstaff and Schwartz (1995) two‐factor regression, extended for correlated spread changes and heteroskedasticity, indicate strong persistence in spread changes. Consistent with theory and previous findings, changes in spreads are significantly negatively related to the term‐structure level while, contrary to theory, the proxy for asset value does not yield a significant negative contribution. We even find a significant positive relation for Eurobonds with long maturity. Tentative interpretations are portfolio‐rebalancing activities or differing risk factor sensitivities on short‐ vs. long‐maturity bonds.     

North–South Trade and Occupational Wages: Some Evidence from North America

The issue of trade and wages in general, and of North–South trade and wages in particular, has recently received a great deal of attention by economists and public policy analysts. This paper offers some empirical evidence of the effects of North–South trade on occupational wages in North America. Using a detailed, applied general equilibrium model, results are obtained indicating that it is possible for trade liberalization among the North American countries to entail real wage benefits for most occupational groups in all three countries. An exception to this general pattern is the case of agricultural laborers in Mexico.     

Cartels and the Incentive to Cheat: Evidence from the Classroom

Several points about cartel behavior are illustrated, using the curve on an exam.     

Convergence within the EU: Evidence from Interest Rates

The economic and political changes which are taking place in Europe affect interest rates. This paper develops a two-factor model for the term structure of interest rates specially designed to apply to EMU countries. In addition to the participant country's short-term interest rate, we include as a second factor a 'European' short-term interest rate. We assume that the 'European' rate follows a mean reverting process. The domestic interest rate also follows a mean reverting process, but its convergence is to a stochastic mean which is identified with the 'European' rate. Closed-form solutions for prices of zero coupon discount bonds and options on these bonds are provided. A special feature of the model is that both the domestic and the European interest rate risks are priced. We also discuss an empirical estimation focusing on the Spanish bond market. The 'European' rate is proxied by the ecu's interest rate. Through a comparison of the performance of our convergence model with a Vasicek model for the Spanish bond market, we show that our model provides a better fit both in-sample and out-of sample and that the difference in performance between the models is greater the longer the maturity of the bonds.
(J.E.L.: E43, C510).     

Technological Change and Wages in China: Evidence from Matched Employer–Employee Data

The relationship between research and development (R&D) intensity and wages is examined using a unique matched employer–employee dataset. The ordinary least squares estimates suggest that a one standard deviation increase in R&D intensity is associated with an increase in the hourly wage rate between 3.4% and 6.9% for the full sample, depending on the exact specification. The instrumental variable estimates are that a one standard deviation increase in R&D intensity is associated with an increase in the hourly wage rate between 5.5% and 11.4%. The wage elasticity with respect to R&D intensity is found to be higher in larger firms as well as for better educated workers and workers with technical skills. Consistent with the rent‐sharing hypothesis it is also found that the wage elasticity with respect to R&D intensity is higher for workers who belong to the Communist Party or union.     

Royalty Rates and Upfront Fees in Share Contracts: Evidence from Franchising

This article provides evidence on the determinants of royaltiesand upfront fees in share contracts by examining how state franchisetermination laws affect franchise contracts. The results areconsistent with the joint hypothesis that the two-sided moralhazard model explains the terms in franchise contracts and thattermination laws increase the relative importance of franchisoreffort (due to the extra effort that is required to controlsystem quality). I find that franchise companies that are headquarteredin termination-law states charge significantly higher royaltyrates than companies headquartered in other states (around 1%higher). Correspondingly, the initial franchise fees are lowerfor companies headquartered in termination states. Overall,franchisees appear to pay a higher price for franchises in stateswith protection laws. Consistent with a basic tenet of law andeconomics, price adjustments appear to offset at least someof the transfers that would otherwise be implied by the laws.     

Minimum Wages and the Gender GAP in Pay: New Evidence from the United Kingdom and Ireland

Women are disproportionately in low‐paid work compared to men so, in the absence of rationing effects on their employment, they should benefit the most from minimum wage policies. This study examines the change in the gender wage gap around the introduction of minimum wages in Ireland and the United Kingdom (U.K.). Using survey data for the two countries, we develop a decomposition of the change in the gender differences in wage distributions around the date of introduction of minimum wages. We separate out “price” effects attributed to minimum wages from “employment composition” effects. A significant reduction of the gender gap at low wages is observed after the introduction of the minimum wage in Ireland, while there is hardly any change in the U.K. Counterfactual simulations show that the difference between countries may be attributed to gender differences in non‐compliance with the minimum wage legislation in the U.K.     

Effects of Chinese Imports on Relative Wages: Microevidence from Chile*

The increasing prominence of China in world trade raises important questions about the impact of this on importer countries. In this paper, we address the issue of how import competition from China has affected relative wages in the Chilean manufacturing industry. Using plant‐level data for the period 1996–2005, we find that increasing imports from China have depressed relative wages in sectors with higher Chinese‐import penetration. Our results show a significant reduction of relative wages, between 4 and 25 percent, for those sectors that have experienced the largest increases in Chinese imports. We also find that this effect is particularly strong for small firms, while large firms are unaffected.