Czech female managers and their wages

This paper examines gender gaps in employment and wages among top- and lower-level managerial employees in the Czech Republic at the time of its accession to the EU. Using both least-squares and matching-based decomposition techniques, we find the wage gap among comparable men and women to be sizeable, but quite similar across firm hierarchy levels. The key reason why the average relative wage position of female top managers is worse compared to lower-ranking female employees is that women tend not to be at the helm of the highest-paying companies. Overall, the representation of women at the top of Czech firms as well as the structure of the gender wage gap there appears quite similar to those in the US.     

Estimating wage losses of displaced workers in Germany

This paper employs the German Socioeconomic Panel (GSOEP) and the social insurance file (IAB) to study the effect of displacement on reemployment earnings of West German workers. On average, wages of the displaced decline only slightly upon reemployment. For workers in the IAB sample in 1986, we find that the lowest earnings quartile, in which displacement is concentrated, even gains slightly (+2%), while wage growth losses for the upper three quartiles are comparable with US evidence (−17%). Large wage losses are persistent and associated with changes of industry, but not of firm. A surprising finding is that displacement in Germany is often associated with later recall, in contrast to the North American experience.     

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.     

Firm heterogeneity and wages in unionised labour markets: Theory and evidence

In many countries wages are set in two stages, where industry-level collective bargaining is followed by firm-specific arrangements determining actual paid wages as a mark-up on the industry wage floor. What explains the wage set in each of these stages? In this paper we show that both the industry wage floor and the average wage cushion are systematically associated with the degree of firm heterogeneity in the industry: The former (latter) is negatively (positively) associated with the productivity spread. Furthermore, since the response of the wage floor dominates that of the wage cushion, workers in more heterogeneous industries tend to get lower actual paid wages. These conclusions are reached in a model of Cournot oligopoly with firm productivity heterogeneity and a two-tiered wage setting system. They are then confirmed by administrative data covering virtually all workers, firms and collective bargaining agreements of the Portuguese private sector for the period 1991–2000.     

Bargaining and Wage Rigidity in a Matching Model for the US

This paper uses robust econometric methods to assess previous empirical results for the Mortensen and Pissarides ( 1994 ) matching model. Assuming all wages are negotiated each period is inconsistent with the history dependence in US wages, even allowing for heterogeneous match productivities, time to build vacancies and credible bargaining. Flexible wages for job changers, with rigid wages for job stayers, allows the model to capture this history dependence and is not inconsistent with parameter calibrations in the literature. Such wage rigidity affects only the timing of wage payments over the duration of matches; conclusions about other characteristics are unaffected by it.     

Flexible collective bargaining agreements: Still a moderating effect on works council behaviour?

We analyse the interaction between different labour market institutions in Germany, namely, industry‐level bargaining and firm‐level codetermination by works councils. In particular, we are interested in the moderating effect of flexibility measures on the link between the existence works councils and collective agreements on wages and productivity. In presence of institutional changes, the question is whether works councils in covered plants still generate rather than redistribute rents, given recent decentralisation processes in the German system of industrial relations. We augment a theoretical model to provide hypotheses, which are then tested using empirical analysis of representative German plant level data. We find that the existence of flexibility provisions in collective bargaining agreements does not alter the effect of works council on firms' wages. We find, however, that with flexibility provisions works council presence is associated with higher productivity levels than without such provisions. These findings, however, depend on the level of collective bargaining: they can only be observed in plants covered by industry‐level contracts, but do not hold in plants covered by firm‐level contracts.     

Wages,work intensity and unemployment in Japan,UK and USA

This paper focuses on the impact of excess labour supply on wage inflation in Japan, the US and the UK. Excess labour supply is not simply measured as officially registered unemployed persons but includes a measure of excess supply within the firm, i.e. work intensity. The empirical analysis confirms the importance of broadening the unemployment definition. Interesting differences arise in the cross-country comparison. Our key conclusions are that work intensity is an important factor in determining wage inflation, and that results based on recorded unemployment rates alone seriously underestimate the flexibility of real wages.     

Union wage setting and progressive income taxation with heterogeneous labor: theory and evidence from the German income tax reforms 1986–1990

This paper analyzes the effects of tax shifting in a model with union wage setting and progressive income taxation. The setup allows for different skill levels of the workforce and accounts for the union's distributional objective of income equality. The theoretical predictions of the model are empirically tested with a panel of German micro-data covering the period of the income tax reforms 1986–1990. It is shown that average taxes raise wages, whereas increasing the progressivity of the tax system reduces wages. The effect of progressivity on high-skilled labor tends to be less significant and smaller. Stronger preferences for equality compress the (pre-tax) wage distribution.     

Monopsonistic competition for the “best” workers

In this paper we analyse an economy where firms use labour as the only production factor, with constant return to scale. We suppose that jobs differ in their non-wage characteristics so each firm has monopsonistic power. In particular, we suppose that workers are heterogeneous with respect to their productivity. Then, each firm has incentives to offer higher wages in order to recruit the most productive workers. Competition among firms leads to a symmetric equilibrium wage, which is higher than the reservation wage, and to involuntary unemployment for the less productive workers, who are willing to work at the current wage but are not hired because their productivity is lower than the wage level. If firms have no institutional constraint on paying lower wages for the same job, an endogenous labour market segmentation emerges.     

Productivity,seniority and wages: new evidence from personnel data

Wages may be observed to increase with seniority because of firm-specific human capital accumulation or because of self-selection of better workers in longer jobs. In both these cases, the upward sloping wage profile in cross-sectional regressions would reflect higher productivity of more senior workers. If this were true, the observation of an effect of seniority on wages would depend on the presence of controls for individual productivity. In this paper we replicate, using personnel data from a large Italian firm, the results of the pioneering work of Medoff and Abraham [Quarterly Journal of Economics (1980); The Journal of Human Resources, 15(2) (1981)] in which supervisors' evaluations were used as productivity indicators. Since the validity of supervisors' evaluations as measures of productivity has been widely criticised, we extend the work of Medoff and Abraham using different direct measures of productivity based on recorded absenteeism and misconduct episodes. Both these indicators and supervisors' evaluation suggest that the observed effect of seniority on wages does not reflect a higher productivity of more senior workers. Only at the lowest levels of the firm's hierarchy, the human capital theory contributes to explain the effect of seniority on wages. At least at all other levels, the explanation of the observed upward sloping profile has to be based on theories in which wages are deferred for incentive or insurance reasons.     

Wage‐setting Decisions on Newly Hired Employees: Survey Evidence from Colombian Firms

This paper uses a survey on wage formation applied to 1305 Colombian firms to study wage‐setting decisions of newly hired employees. The survey indicates that wages of the newly hired are based mainly on a predefined wage structure. This may help to explain, in part, the presence of downward nominal wage rigidities in the Colombian formal labour market, since firms are unwilling to differentiate the pay of new hires from the wages of existing workers. Using multinomial logit models, we find that firm size and the share of temporary workers increase the relative risk of using a predefined internal structure over bargaining between employee and employer when setting the wages of the newly hired employees. Copyright © 2013 John Wiley & Sons, Ltd.     

The impact of cognitive skills on the distribution of the black-white wage gap

In this paper we use a semi-parametric estimation procedure to examine differences in the distribution of wages for black and white male workers in the US. In keeping with recent studies we find that differences in cognitive skills are an important determinant of the black-white wage gap and can explain almost the entire male racial wage gap among high wage workers. However, we find that equalising the distribution of cognitive skills will be less successful in reducing this gap at the lower end of the distribution.     

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.     

Too many theories,too few facts? What the data tell us about the link between span of control,compensation and career dynamics

In this paper, we use a unique personnel dataset from a large European firm in an high tech manufacturing industry that provides information about hierarchical relationships. This unusually rare feature allows us to identify the chain of command. We provide a few stylized facts about the link between span of control, compensation and career dynamics and relate our findings to the existing theoretical literature of hierarchies in organizations: the assignment model, the incentives model, the information processing model, the supervision model, and the knowledge-based hierarchy model. We observe an increase in the span, an increase in wage inequality between job levels, and the introduction of a new hierarchical level. We also find that higher spans of control are associated with higher wages. The knowledge-based hierarchy provides the most likely explanation for these results when communication costs are decreasing. However, we also find evidence of learning and reallocation of talent within and across job levels, a finding that can not be explained by a static model of knowledge based hierarchy but rather by dynamic models of careers in organizations. Finally, we provide a few suggestions to enrich the existing theoretical literature and reconcile it with the facts.     

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.     

Habit formation and wage determination

We analyse the implications of habit formation relating to wages in a multiperiod efficiency‐wage model. If employees have such preferences, their existence provides firms with incentives to raise wages and reduce employment over time. Greater intensity does not necessarily have the same consequences, because wage adjustments counteract the initial level impact. The firm's response additionally depends on the wage dependency of dismissal costs, because such costs make an increasing wage profile over time more attractive and mitigate the effects of greater intensity of habit formation. We further show that short‐lived productivity shocks have long‐lasting wage and employment consequences. Moreover, habit concerns by firm owners reduce wages.     

Minimum wages and employment in Swedish hotels and restaurants

This paper considers the effects of union-bargained minimum wages on transitions into and out of employment in the hotels and catering industry over the period 1979–99. This industry is characterised by a high fraction of unskilled labour input, high worker turnover and binding minimum wages. The empirical approach identifies workers affected by real minimum wage increases and decreases, respectively. Job separations and accessions for the treatment groups are then contrasted to the outcomes for control groups, with wages marginally above those of the treatment groups. Unlike previous studies, this paper also considers same-period transitions for same-wage workers who are unaffected by minimum wage changes. This procedure should help to control for unobserved differences between high- and low-wage workers and is made possible by the diversified minimum wage structure of the industry. According to the results, job separations tend to increase with rising minimum wages (except for teenagers during 1993–98). The evidence regarding accessions is less conclusive.     

Tighter labour markets to finally lift global wages

• Wage growth has been relatively slow since 2007 in advanced economies, but an upturn may be in sight. Slow productivity growth remains an issue but tighter labour markets make a positive response by wages to rising inflation more likely and there are signs that compositional and crisis‐related effects that dragged wage growth down are fading – though Japan may be an exception.
• Overall, our forecasts are for a moderate improvement in wage growth in the major economies in 2017–18, with the pace of growth rising by 0.5–1% per year relative to its 2016 level by 2018 – enough to keep consumer spending reasonably solid.
• Few countries have maintained their pre‐crisis pace of wage growth since 2007. In part this reflects a mixture of low inflation and weak productivity growth, but other factors have also been in play: in the US and Japan wage growth has run as much as 0.5–1% per year lower than conventional models would suggest.
• The link with productivity seems to have weakened since 2007 and Phillips curves – which relate wages to unemployment – have become flatter. A notable exception is Germany, where the labour market has behaved in a much more ‘normal’ fashion over recent years with wage growth responding to diminishing slack.
• ‘Compositional’ factors related to shifts in the structure of the workforce may have had an important influence in holding down wage growth, cutting it by as much as 2% per year in the US and 1% per year in the UK. There are some signs that the impact of these effects in the UK and US are fading, but not in Japan.
• The forecast rise in inflation over the next year as energy price base effects turn positive is a potential risk to real wages. But the decline in measures of labour market slack in the US, UK and Germany suggests wages are more likely to move up with inflation than was the case in 2010–11 when oil prices spiked and real wages fell.

     

Global wages: we don't (yet) have lift‐off

• ? Policymakers, most notably in the US, have been expecting wage growth to pick up for some time as job markets tighten. But the data over the last six months have shown few indications of wage lift‐off. Our review of the latest evidence suggests that although labour markets are, on the whole, still tightening, we see increased downside risks to our forecasts for faster global wage growth in 2018–19.
• ? Rates of “churn” in labour markets – a possible precursor to faster wage growth – have continued to rise in the US and parts of Europe.
• ? But other structural factors may still be holding wages down. A recovery in prime‐age participation in the US may be helping to cap wage rises, as may a pool of “underemployed” workers in the US and UK (though this pool is shrinking fast).
• ? Productivity growth also remains weak, running at a 0.5%–1% annual pace in Q1 2017 across the US, UK, Germany and Japan. This compares with a G7 average pace of 1.5% per year in 1985–2006.
• ? Overall, the risks to our baseline forecast of faster wage growth in the major economies in 2018 look skewed to the downside. We expect wage growth to firm in 2018 by 0.5–1 percentage points in the US, UK, Germany and Japan. We would give this modal forecast a probability of around 60%, but with a 25% chance that wage growth is somewhat slower than this and only a 15% chance that it is higher.

     

The importance of firms in wage determination

Firms are central to many theories of the labor market. However, the actual degree to which firms shape the structure of wages is still not well understood. This paper investigates (i) the importance of firms in explaining wage differences across individuals and industries, and (ii) how the nature of interfirm mobility – job-to-job vs. job-unemployment-job – affects the relative importance of firms and workers in wage determination. Results indicate that (i) firms are much more important in explaining the variance of average wages across industries rather than across individuals, and (ii) using job-to-job transitions to identify the firm's contribution to the wage rate reduces the importance of firm wage policies in explaining wage differences by as much as 50%.