A Theory of Wage Setting Behavior

Concerns for fairness, workers' morale and reciprocity infuence firms' wage setting policy. In this paper we formalize a theory of wage setting behavior in a simple and tractable model that explicitly considers these behavioral aspects. A worker is assumed to have reference-dependent preferences and displays loss aversion when evaluating the fairness of a wage contract. The theory establishes a wage-effort relationship that captures the worker's reference-dependent reciprocity, which in turn in uences the firm's optimal wage policy. The paper makes two key contributions: it identifies loss aversion as an explanation for a worker's asymmetric reciprocity; and it provides realistic and generalized microfoundation for downward wage rigidity. We further illustrate the implications of our theory for both wage setting and hiring behavior. Downward wage rigidity generates several implications for the outcome of the initial employment contract. The worker's reference wage, his extent of negative reciprocity and the firms expectations are key drivers of the propositions derived.

Selection bias and unobservable heterogeneity applied at the wage equation of European married women

This paper utilizes a panel data sample selection model to correct the selection in the analysis of longitudinal labor market data for married women in European countries. We estimate the female wage equation in a framework of unbalanced panel data models with sample selection. The wage equations of females have several potential sources of.

Risk Attitude And Wage Growth: Replication And Reconstruction

We replicate Shaw (1996) who found that individual wage growth is higher for individuals with greater preference for risk taking. Expanding her dataset with more American observations and data for Germany, Spain and Italy, we find mixed support for the earlier results. We present and estimate a new model and find that in particular the wage level is sensitive to attitudes towards risk taking. Comments given at the Labour Economics Conference in honour of Niels Westergaard (Nyborg, August 2008) and EALE 2008 (Amsterdam) and at seminars in Maastricht,Reus and Essen (RWI) are gratefully acknowledged. The authors also acknowledge financial support from the Spanish Ministry of Science and Innovation (grant number SEJ2007-66318) and from the Barcelona Economics Program of CREA. JEL code: J24; J30. Key words: wage growth, risk, post-school investment.

The Wage-Productivity gap revisited: is the labour share neutral to employment?

This paper challenges the prevailing view of the neutrality of the labour income share to labour demand, and investigates its impact on the evolution of employment. Whilst maintaining the assumption of a unitary long-run elasticity of wages with respect to productivity, we demonstrate that productivity growth affects the labour share in the long run due to frictional growth (that is, the interplay of wage dynamics and productivity growth). In the light of this result, we consider a stylised labour demand equation and show that the labour share is a driving force of employment. We substantiate our analytical exposition by providing empirical models of wage setting and employment equations for France, Germany, Italy, Japan, Spain, the UK, and the US over the 1960-2008 period. Our findings show that the timevarying labour share of these countries has significantly influenced their employment trajectories across decades. This indicates that the evolution of the labour income share (or, equivalently, the wage-productivity gap) deserves the attention of policy makers.

Monopolistic competition and different wage setting systems

In this paper we match the static disequilibrium unemployment model without frictions in the labor market and monopolistic competition with an infinite horizon model of growth. We compare the wages set at the firm, sector and national (centralized) levels, their unemployment rates and growth of the economic variables, for the Cobb-Douglas production function, in order to see under wich conditions the inverse U hypothesis between unemployment and centralization of wage bargain is confirmed. We also analyze, in the three wage setting systems, the effect of an increase in the monopoly power on employment and growth.

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 wage inertia. 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 non-monotonic transitions in the economy with wage inertia that do not arise in the economy with flexible wages. We also study the growth effects of permanent technological and fiscal policy shocks in these two economies. During the transition, the growth effects of technological shocks obtained when wages exhibit inertia may be the opposite from the ones obtained when wages are flexible. In the long run, these technological shocks may have long run effects if there is wage inertia. We also show that the growth effects of fiscal policies will be delayed when there is wage inertia.

Wage effects from changes in local human capital in Britain

This paper examines the impact of local human capital on individuals’ wages through external effects. Employing wage regressions, it is found that changes in individuals’ wages are positively associated with changes in the shares of high-paid occupation workers in the British travel-to-work-areas for the late 1990s. I examine this positive association for different occupational groups (defined by pay) in order to disentangle between production function and consumer demand driven theoretical explanations. The wage effect is found to be stronger and significant for the bottom-paid occupational quintile compared to the middle-paid ones, and using also sectoral controls the paper argues to provide evidence for the existence of consumer demand effects.

Changes in wage structure in Mexico going beyond the mean: An analysis of differences in distribution, 1987-2008

This paper conducts an empirical analysis of the relationship between wage inequality, employment structure, and returns to education in urban areas of Mexico during the past two decades (1987-2008). Applying Melly’s (2005) quantile regression based decomposition, we find that changes in wage inequality have been driven mainly by variations in educational wage premia. Additionally, we find that changes in employment structure, including occupation and firm size, have played a vital role. This evidence seems to suggest that the changes in wage inequality in urban Mexico cannot be interpreted in terms of a skill-biased change, but rather they are the result of an increasing demand for skills during that period.

Health Inequalities and the Living Wage

Evidence Review 6 - Health inequalities and the living wage Briefing 6 - Health inequalities and the living wage This pair of documents, commissioned by Public Health England, and written by the UCL Institute of Health Equity, address the role of a minimum income in improving health. These papers provide a summary of evidence on the health impacts of living on a low income. They assess the evidence around how the living wage addresses low incomes, health and health inequalities. The living wage is an hourly minimum wage, optional for employers, calculated according to the basic cost of living. Local authorities and other organisations that have implemented the living wage for their staff are presented as case study interventions to show how it is possible, the challenges faced and how they were overcome and any reported income, health and business benefits. The full evidence review and a shorter summary briefing are available to download above. This document is part of a series. An overview document which provides an introduction to this and other documents in the series, and links to the other topic areas, is available on the ‘Local Action on health inequalities’ project page. A video of Michael Marmot introducing the work is also available on our videos page.

Sib-sib communication and the risk of prey theft in the barn owl Tyto alba

Conflicts among siblings are widespread and their resolution involves complex physical and communication tools. Observations in the barn owl Tyto alba showed that siblings vocally communicate in the absence of parents to negotiate priority of access to the impending food resources that parents will bring. In the present paper, we hypothesize and provide correlative evidence that after a parent brought a food item to their progeny, sibling competition involves vocal sib-sib communication. A food item takes a long time to be entirely consumed, and hence siblings continue to compete over prey monopolization even after parents gave a food item to a single offspring. When physical competition is pronounced and thereby the risk of prey theft is high, the individual that received a prey item consumes it in a concealed place. Concomitantly, nestlings vocalize intensely probably to indicate their motivation to siblings to not share their food item, since this vocal behaviour was particularly frequent in younger individuals for which the risk of being robbed is higher than in their older siblings. Furthermore, nestlings consumed more rapidly a food item when their siblings vocalized intensely presumably because the intensity of siblings' vocalizations is associated with a risk of prey theft. Our correlative study suggests that sibling competition favoured the evolution of sib-sib communication under a wide range of situations.

Iowa Certified Nursing Assistant Wage and Benefit Survey, June 2001

Iowa Certified Nursing Assistant Wage and Benefit Survey

Is there a wage penalty for horizontal and vertical mismatch?

This paper studies how the horizontal and vertical mismatches in the labor market affect wage. We do so by taking into account that by choosing a job, wage and mismatches are simultaneously determined. The Seemingly Unrelated Equations model also allows us to control for any omitted variable that could cause biased estimators. We use REFLEX data for Spain. Results reveal that in most cases being horizontally matched has a wage premium and being over-educated does not affect wage. Results suggest that the modeling strategy successfully accounts for some omitted variable that affects simultaneously the probability of being horizontally matched and the wage. This could explain the existence of a wage penalty for over-educated workers when the omitted variable issue is not dealt with.

Iowa Gender Wage Study, 1999

In 1993, Iowa Workforce Development (then the Department of Employment Services) conducted a survey to determine if there was a gender gap in wages paid. The results of that survey indicated that women were paid 68 cents per dollar paid to males. We felt a need to determine if this relationship of wages paid to each gender has changed since the 1993 study. In 1999, the Commission on the Status of Women requested that Iowa Workforce Development conduct research to update the 1993 information. A survey, cosponsored by the Commission on the Status of Women and Iowa Workforce Development, was conducted in 1999. The results of the survey showed that women earned 73 percent of what men earned when both jobs were considered. (The survey asked respondents to provide information on a primary job and a secondary job.) The ratio for the primary job was 72 percent, while the ratio for the secondary job was 85 percent. Additional survey results detail the types of jobs respondents had, the types of companies for which they worked and the education and experience levels. All of these characteristics can contribute to these ratios. While the large influx of women into the labor force may be over, it is still important to look at such information to determine if future action is needed. We present these results with that goal in mind. We are indebted to those Iowans, female and male, who voluntarily completed the survey. This study was completed under the general direction of Judy Erickson. The report was written by Shazada Khan, Teresa Wageman, Ann Wagner, and Yvonne Younes with administrative and technical assistance from Michael Blank, Margaret Lee and Gary Wilson. The Iowa State University Statistical Lab provided sampling advice, data entry and coding and data analysis.