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.     

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.     

The role of unemployment in wage determination: further evidence on the wage curve from Turkey

This paper presents an empirical estimation of the correlation between wages and regional unemployment rates in Turkey, more specifically it explores the role of regional unemployment rates in wage determination. The analysis builds upon a series of recent empirical studies on the wage-unemployment relationship, now commonly known as ‘the wage curve’, a downward sloping curve in wage-unemployment space. The existing studies are for most part in advanced market economies, while this paper presents one of the few attempts at a wage curve analysis within the context of a developing market economy. A cross-sectional estimation of micro level individual wage data for the Turkish labour market in 1994, suggest a statistically significant negative correlation between wages and regional unemployment rates. Separate regressions for men and women, however, show a wage curve to exist only in the male labour market. The study also presents the results on other variables of wage determination such as returns to schooling, returns to age, job tenure, gender, industrial and occupational affiliation of the worker, economic sector and union status.     

A dynamic spatial panel data approach to the German wage curve

A wage curve is a decreasing function of wages on the regional unemployment rate. Most empirical studies on the wage curve ignore possible spatial interaction effects between the regions which are the primary units of research. This paper reconsiders the western German wage curve with a special focus on the geography of labour markets. Spillovers between regions are taken into account. The paper tests whether the unemployment rate in the larger surrounding region also affects wages. In addition, agglomeration effects and effects of local monopsony are assessed.The main database is a random sample of 974,179 employees observed over the period 1980-2004 and covering 326 NUTS3 units (districts). This rich data set is used to estimate a dynamic wage curve according to the two-step approach of Bell et al. (2002). In the first step one controls for individual heterogeneity and in the second step one allows for spatial effects of unemployment across regions on wages. We check the sensitivity of this wage elasticity to various spatial weight matrices as well as allowing for the endogeneity of unemployment. We also estimate the wage elasticity for various population groups.     

Hourly wage rate and taxable labor income responsiveness to changes in marginal tax rates

Recently, a voluminous literature estimating the taxable income elasticity has emerged as an important field in empirical public economics. However, to a large extent it is still unknown how the hourly wage rate, an important component of taxable income, reacts to changes in marginal tax rates. In this study we use a rich panel data set and a sequence of tax reforms that took place in Sweden during the 1980s to estimate the elasticity of the hourly wage rate as well as the taxable labor income elasticity with respect to the net-of-tax rate. We also estimate elasticities with respect to the non-labor income in a way that is novel in the literature. While carefully accounting for the endogeneity of marginal tax rates we find a statistically significant response in wage rates both among married men and women. The estimates of the hourly wage rate elasticity with respect to the net-of-tax rate fall in the range of 0.14–0.16 for males and 0.41–0.57 for females, whereas the corresponding taxable labor income elasticity estimates hover between 0.19–0.21 for males and 0.96–1.44 for women. Moreover, for men we find that the taxable labor income elasticity with respect to non-labor income is statistically significant; the point estimate being ? 0.07. This implies that the compensated taxable labor income elasticity is about 5 percentage points higher than the uncompensated one. In general, we consider the estimates for males to be more certain and robust than the estimates for females.     

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.     

Migration and Wage‐setting: Reassessing the Labor Market Effects of Migration*

In this paper we employ a wage‐setting approach to analyze the labor market effects of immigration into Germany from 1980 to 2004. This enables us to consider labor market rigidities, which are prevalent in Europe. We find that the elasticity of the wage‐setting curve is particularly high for young workers. Moreover, natives and foreigners are imperfect substitutes. The wage and employment effects of immigration depend on the skill structure of the immigrant workforce. Because the foreign labor supply shift has mainly affected the high‐skilled labor market segment, the 4 percent increase of the workforce through immigration has not increased either aggregate or foreign unemployment.     

Spatial heterogeneity in the wage curve

Blanchflower and Oswald argue that the wage curve is a predictable empirical relationship with the “unemployment elasticity of pay” of about −0.1. Using GWR I find evidence of significant spatial heterogeneity in the unemployment elasticity of pay for US counties.     

Wage and unemployment: Evidence from online job vacancy data

This paper examines the relationship between labour market conditions and wage dynamics by exploiting a unique dataset of more than one million online job vacancies. We find a weak trade-off between aggregate wage inflation and unemployment. This link becomes more evident when the wage inflation is disaggregated at the sectoral and occupational level. The examination, using vacancy-level data, shows a negative correlation between offered wage and unemployment. The degree of wage elasticity, however, is different across regions and skill segments. Our findings suggest the importance of micro-level data's unique dimensions in examining the wage – unemployment relationship.     

Did the German Minimum Wage Reform Influence (Un)employment Growth in 2015? Evidence from Regional Data

Using the variation across space, age and sex and the variation across space and sectors, we analyse the relationship between the minimum wage and (un)employment growth in 2015. We use difference‐in‐differences specifications and instrument the bite of the minimum wage by the lagged bite. The results provide stable evidence that a higher minimum wage bite is related to a higher growth rate of regular employment. We also find stable evidence that a higher minimum wage bite is related to a lower growth rate of marginal employment. These results are consistent with a transformation of marginal to regular jobs. The relationship to total employment is slightly positive in our preferred specification but insignificant or negative in others. For unemployment, we find a positive relationship between the bite of the minimum wage and unemployment growth in our preferred specification but insignificant or negative results in others.     

Are estimates of labour demand functions mere statistical artefacts?

This paper considers the estimation of putative neoclassical aggregate labour demand functions using constant price value data. Regression results normally find that employment is negatively related to the real wage and that the constant‐output elasticity of employment with respect to the real wage is about ?0.3. This is taken as evidence that unemployment is the result of the real wage being too high, ceteris paribus. This paper shows that these estimates are purely the result of an underlying identity and cannot be interpreted as implying any causal relationship and, as such, they have no policy implications.     

How flexible are real wages in EU countries? A panel investigation

We estimate the degree of real wage flexibility in 19 EU countries in a wage Phillips curve panel framework. We find evidence for a reaction of wage growth to unemployment and productivity growth. The degree of real wage flexibility tends to be larger in the central and eastern European (CEE) countries than in the euro area; weaker in downturns than during upswings. There exists an inflation threshold, below which real wage flexibility is low. We also find that a part of the heterogeneity in real wage flexibility and unemployment may be related to differences in the wage bargaining institutions.     

Are low-skill public sector workers really overpaid? A quasi-differenced panel data analysis

Public–private sectoral wage differentials have been studied extensively using quantile regression techniques. These typically find large public sector premiums at the bottom of the wage distribution. This may imply that low skill workers are ‘overpaid’, prompting concerns over efficiency. We note several other potential explanations for this result and explicitly test whether the premium varies with skill, using Australian data. We use a quasi-differenced Generalized Method of Moments (GMM) panel data model which has not been previously applied to this topic, internationally. Unlike other available methods, this technique identifies sectoral differences in returns to unobserved skill. It also facilitates a decomposition of the wage gap into components explained by differences in returns to all (observed and unobserved) skills and by differences in their stock. We find no evidence to suggest that the premium varies with skill. One interpretation is that the compressed wage profile of the public sector induces the best workers (on unobserved skills) to join the public sector in low wage occupations, vice versa in high wage occupations. We also estimate the average public sector premium to be 6% for women and statistically insignificant (4%) for men.     

Analysis of wage flexibility across the Euro Area: evidence from the process of convergence of the labour income share ratio

This article analyses wage flexibility as a factor in the unemployment rate across 12 Euro Area countries. We use extensive evidence pertaining to the countercyclical behaviour of the labour income share ratio to estimate its equilibrium value in the long run. This measure is calculated using a hybrid New Keynesian Phillips curve. Additionally, by using spatial econometrics, we can incorporate into the study the interdependence in the inflation among the countries. As a result, we identify countries that might see an improvement in their employment rates by improving their wage flexibility. We also identify countries with high unemployment that is not a consequence of a lack of wage flexibility.     

Reference Dependent Preference and Labor Supply: Evidence from China

This paper investigates the daily labor supply decisions of Hangzhou cabdrivers. We find that Hangzhou cabdrivers’ wage elasticity is significantly positive, their working decisions are largely affected by shift time, and crude proxy variables for income; hours targets can hardly explain their working behavior. Nevertheless, Hangzhou cabdrivers are still affected by reference dependent preference. Using new empirical strategies, we show that cabdrivers are more likely to continue working when wage rates are unexpectedly low and more likely to quit when wage rates are unexpectedly high.     

Price and quantity adjustments in the Austrian labour market

Austria is among the very few countries in the European Union which have managed to maintain comparatively low unemployment rates and high employment rates. This study looks at the price and quantity adjustment mechanisms in the Austrian labour market which may have contributed to this favourable outcome. After reviewing briefly the basic theoretical reasoning an empirical investigation is began into gross flow dynamics in the labour market and the cyclical volatility of employment and unemployment in Austria. In international comparison Austrian unemployment is very stable over the business cycle. This is due mainly to the high sensitivity of the labour force on cyclical conditions and, partly, also on the relatively weak responsiveness of employment to cyclical fluctuations in output, the latter being possibly attributable to the high degree of real wage flexibility in Austria. The study proceeds to show that the long-run elasticity of wages with respect to unemployment is indeed quite high in Austria. However, evidence was also found for outsider effects in the Austrian wage setting process. Relative wage structures, on the other hand, appear to be rather rigid.     

Equilibrium unemployment: Theory and measurement in Australia using the Phillips curve

This paper reviews the measurement of equilibrium unemployment in Australia using the Phillips curve. To provide a theoretical framework through which these measurement exercises can be understood, the theory of equilibrium unemployment based on wage bargaining is also described and reviewed. The paper shows how studies have moved from specifying a unique and constant equilibrium rate of unemployment to specifications which emphasise the influence of unemployment benefits, hysteresis and a range of equilibrium rates of unemployment.     

RAISING WAGES TO DETER ENTRY INTO UNIONIZED MARKETS*

This paper investigates entry under a unionized oligopoly when entry and wage negotiations are sequential. We find the incumbent has incentives to raise the wage, which strengthens the bargaining position of the union relative to the entrant at subsequent negotiations and thus discourages entry. We show that entry is more likely to be deterred (accommodated) if the union is wage (employment) oriented and that raising unemployment compensation during recession not only reduces the burden of the unemployed but also induces new entry, creating more employment opportunities. However, during a business boom, reducing unemployment compensation is a better policy.     

Firm profitability,regional unemployment and human capital in wage determination

This paper presents an analysis of wage formation in the Norwegian private sector using data for individual workers matched with firm level information and regional unemployment. A key issue is to test whether or not firm specific variables affect individual wages after controlling for individual specific factors and working conditions. The results imply positive effects of firm specific profitability and firm size. The elasticity of wages with respect to value added per worker and firm size is 5% and 3.3%, respectively. Empirical evidence of a downward sloping regional wage curve is also reported, while there is no support of the hypothesis of compensating wage differentials. Since data for three levels of aggregation are used, the OLS estimates of the standard errors are downward biased. Therefore, results using a random effects model are also reported, taking the multi-level structure of the data into account.     

Institutions,capital stock and wage setting in Spain

This article confronts two distinct perspectives of the labour market: the institutionalist view?–?highlighting equilibrium and labour market institutions?–?and the Chain Reaction Theory?–?emphasizing dynamics and the growth drivers’ role in labour market performance. We consider the ratio of public to private capital stock as a growth driver relevant to the labour market; provide different economic rationales for this ratio to exert a negative influence in wage setting; and explore its empirical relevance in the context of a wage setting curve for Spain comprising the standard variables. There are two main results. First, several institutional variables taken to be critical to explain unemployment in the mainstream literature are not relevant for the Spanish wage setting curve. Second, there is a negative and significant influence of the ratio of public to private capital stock, which is robust to different specifications of the wage setting equation.