Growth, unemployment and wage inertia

We introduce wage setting via efficiency wages in the neoclassical one-sector growth model to study the growth effects of wage inertia. We compare the dynamic equilibrium of an economy with wage inertia with the equilibrium of an economy without it. We show that wage inertia affects the long run employment rate and that the transitional dynamics of the main economic variables will be different because wages are a state variable when wage inertia is introduced. In particular, we show that the model with wage inertia can explain some growth patterns that cannot be explained when wages are flexible. We also study the growth effects of permanent technological and fiscal policy shocks in these two economies.

Labour market innovations and policy learning : report on Switzerland

This paper analyses learning and implementation of labour market reforms in Switzerland.

Best practice report on policy learning infrastructures in innovative labour market policies

This report synthesizes the findings of 11 country reports on policy learning in labour market and social policies that were conducted as part of WP5 of the INSPIRES project, which is funded by the 7th Framework Program of the EU-Commission. Notably, this report puts forward objectives of policy learning, discusses tools, processes and institutions of policy learning and presents the impacts of various tools and structures of the policy learning infrastructure for the actual policy learning process. The report defines three objectives of policy learning: evaluation and assessment of policy effectiveness, vision building and planning, and consensus building. In the 11 countries under consideration, the tools and processes of the policy learning, infrastructure can be classified into three broad groups: public bodies, expert councils, and parties, interest groups and the private sector. Finally, we develop four recommendations for policy learning: Firstly, learning processes should keep the balance between centralisation and plurality. Secondly, learning processes should be kept stable beyond the usual political business cycles. Thirdly, policy learning tools and infrastructures should be sufficiently independent from political influence or bias. Fourth, Policy learning tools and infrastructures should balance out mere effectiveness, evaluation and vision building.

Wage inequality and economic growth in Mexican regions

Only a few studies have analysed the relationship between intraregional inequality and growth, although several studies have measured inequality at the regional level. The objective of this paper is to analyse the relationship between income (wage) inequality and economic growth in different regions of Mexico. We also try to identify factors that explain the variation of intra-regional inequality across Mexican regions and over time. Using macroeconomic databases and publicly available microdata, we apply techniques used in the fields of statistics and econometrics to obtain robust evidence on the relationship between growth and inequality. Our aim is to provide policy recommendations to support the design and implementation of growth-promoting measures thatavoid the exclusion of certain social groups. This paper provides reasons to use a spatial approach and an analysis of particular regions to avoid «one size fits all» policy recommendations.

Décision de baisser les salaires ou non: Le rôle de l'empathie face à une recommandation d'un supérieur hiérarchique (The role of Empathy in wage cut decisions).

En entreprise, les supérieurs hiérarchiques ont une influence non négligeable sur la prise de décision de leurs subordonnés. Ces derniers tendent à se conformer à l'avis de leur supérieur pour prendre leurs décisions. Toutefois, cette conformité des subordonnés à l'avis de leur supérieur peut devenir un problème lorsque l'avis reçu est questionnable d'un point de vue éthique. Les études antérieures menées à ce sujet ont démontré que le contenu n'a pas d'impact, c'est-à-dire que du moment qu'un avis est donné par un supérieur hiérarchique, les subordonnés tendent à se conformer à cet avis quelque soit son contenu. Dans la présente expérience, nous nous sommes intéressés à ce phénomène de conformité dans une prise de décision ayant des conséquences sur des personnes. En particulier, nous avons étudié le rôle de l'empathie, définit comme l'habilité de ressentir les émotions des autres ou de se mettre à leur place. Notre première hypothèse concerne l'effet principal de l'avis du supérieur : les participants tiennent compte de l'avis de leur supérieur dans leur prise de décision. Notre seconde hypothèse concerne le rôle modérateur de l'empathie: les participants haut en empathie sont moins sensibles à l'avis de leur supérieur que les participants bas en empathie étant donné qu'ils anticipent les conséquences de leur décision vis-à-vis des personnes concernées. Cent-douze étudiants ont participé à un exercice de mise en situation. Dans la peau d'un chef de Département d'une entreprise, ils devaient entre autres réfléchir au problème du niveau des salaires du personnel peu qualifié et en particulier au fait que cette catégorie de salariés était surpayée par rapport à ce qui se pratiquait sur le marché du travail. Cette expérience était composée de deux conditions, où l'avis du supérieur était manipulé. Dans la condition 1, l'avis du supérieur était de baisser les salaires, alors que dans la condition 2 l'avis était de garder les salaires constants. Les résultats ont confirmé nos hypothèses. Les participants recevant l'avis de leur supérieur de baisser les salaires ont effectivement pris la décision de baisser les salaires. Il a aussi été démontré que le niveau d'empathie modère cette relation. Les participants haut en empathie ont eu tendance à ne pas suivre l'avis donné contrairement aux participants bas en empathie. Cela démontre ainsi l'influence que peut avoir le contexte sur les individus et leur prise de décision mais aussi que les caractéristiques personnelles ont une influence non négligeable.

Policy learning in Europe : social policy and labour market reforms in 11 countries

This report compares policy learning processes in 11 European countries. Based on the country reports that were produced by the national teams of the INSPIRES project, this paper develops an argument that connects problem pressure and politicization to learning in different labor market innovations. In short, we argue that learning efforts are most likely to impact on policy change if there is a certain problem pressure that clearly necessitates political action. On the other hand, if problem pressure is very low, or so high that governments need to react immediately, chances are low that learning impacts on policy change. The second part of our argument contends that learning impacts on policy change especially if a problem is not very politicized, i.e. there are no main conflicts concerning a reform, because then, solutions are wound up in the search for a compromise. Our results confirm our first hypothesis regarding the connection between problem pressure and policy learning. Governments learn indeed up to a certain degree of problem pressure. However, once political action becomes really urgent, i.e. in anti-crisis policies, there is no time and room for learning. On the other hand, learning occurred independently from the politicization of problem. In fact, in countries that have a consensual political system, learning occurred before the decision on a reform, whereas in majoritarian systems, learning happened after the adoption of a policy during the process of implementation.

Public-private sector wage differentials by type of contract: evidence from Spain

The article examines public-private sector wage differentials in Spain using microdata from the Structure of Earnings Survey (Encuesta de Estructura Salarial). When applying various decomposition techniques, we find that it is important to distinguish by gender and type of contract. Our results also highlight the presence of a positive wage premium for public sector workers that can be partially explained by their better endowment of characteristics, in particular by the characteristics of the establishment where they work. The wage premium is greater for female and fixed-term employees and falls across the wage distribution, being negative for more highly skilled workers.

Overeducation, skills and wage penalty: Evidence for Spain using PIAAC data

The literature on educational mismatches finds that overeducated workers suffer a wage penalty compared with properly educated workers with the same level of education. Recent literature also suggests that individuals’ skill heterogeneity could explain wage differences between overeducated and properly matched workers. The hypothesis is that overeducated workers earn less due to their lower competences and skills in relative terms. However, that hypothesis has been rarely tested due to data limitations on individuals’ skills. The aim of this paper is to test the individuals’ skill heterogeneity theory in Spain using microdata from PIAAC, because it is one of the developed countries supporting the highest overeducation rates and where its adult population holds the lowest level of skills among a set of developed countries. Our hypothesis is that the wage penalty of overeducation in Spain is explained by the lower skill level of overeducated workers. The obtained evidence confirms this hypothesis but only to a certain extent as skills only explain partially the wage penalty of overeducation.

Labor Market Signaling and Self-Confidence: Wage Compression and the Gender Pay Gap

I extend Spence's signaling model by assuming that some workers are overconfident-they underestimate their marginal cost of acquiring education-and some are underconfident. Firms cannot observe workers' productive abilities and beliefs but know the fractions of high-ability, overconfident, and underconfident workers. I find that biased beliefs lower the wage spread and compress the wages of unbiased workers. I show that gender differences in self-confidence can contribute to the gender pay gap. If education raises productivity, men are overconfident, and women underconfident, then women will, on average, earn less than men. Finally, I show that biased beliefs can improve welfare.

Regional heterogeneity in wage distributions. Evidence from Spain.

Regional differences in real wages have been shown to be both large and persistent in the U.S. and the U.K., as well as in the economies of other countries. Empirical evidence suggests that wage differentials adjusted for the cost of living cannot only be explained by the unequal spatial distribution of characteristics determining earnings. Rather, average wage gap decomposition reveals the important contribution made by regional heterogeneity in the price assigned to these characteristics. This paper proposes a method for assessing regional disparities in the entire wage distribution and for decomposing the effect of differences across regions in the endowments and prices of the characteristics. The hypothesis forwarded is that the results from previous studies obtained by comparing average regional wages may be partial and nonrobust. Empirical evidence from a matched employer-employee dataset for Spain confirms marked differences in wage distributions between regions, which do not result from worker and firm characteristics but from the increasing role of regional differences in the return to human capital.

Human Capital and Regional Wage Gaps

This paper uses micro-level data to analyse the effect of human capital on regional wage differentials. The results for the set of Spanish regions confirm that they differ in the endowment of human capital, but also that the return that individuals obtain from it varies sharply across regions. Regional heterogeneity in returns is especially intense in the case of education, particularly when considering its effect on the employability of individuals. These differences in endowment and, especially, in returns to human capital, account for a significant proportion of regional wage gaps.

Public-private sector wage differentials by type of contract: evidence from Spain

The article examines public-private sector wage differentials in Spain using microdata from the Structure of Earnings Survey (Encuesta de Estructura Salarial). When applying various decomposition techniques, we find that it is important to distinguish by gender and type of contract. Our results also highlight the presence of a positive wage premium for public sector workers that can be partially explained by their better endowment of characteristics, in particular by the characteristics of the establishment where they work. The wage premium is greater for female and fixed-term employees and falls across the wage distribution, being negative for more highly skilled workers.

Real unit labour costs in Eurozone countries: drivers and clusters

We examine the trajectories of the real unit labour costs (RULCs) in a selection of Eurozone economies. Strong asymmetries in the convergence process of the RULCs and its components —real wages, capital intensity, and technology— are uncovered through decomposition and cluster analyses. In the last three decades, the PIIGS (Portugal, Ireland, Italy, Greece, and Spain) succeeded in reducing their RULCs by more than their northern partners. With the exception of Ireland, however, technological progress was weak; it was through capital intensification that periphery economies gained efficiency and competitiveness. Cluster heterogeneity, and lack of robustness in cluster composition, is a reflection of the difficulties in achieving real convergence and, by extension, nominal convergence. We conclude by outlining technology as the key convergence factor, and call for a renewed attention to real convergence indicators to strengthen the process of European integration.