The Wage Curve.

Previous research on wages and unemployment across space theoretical issues the US wage curve I - basics the US wage curve II - further tests Britain's wage curve wage curves in other European countries Canada, South Korea, Australia and other nations summary and conclusions. Appendices: US data files British data files European data files Canadian, Australian and South Korean data files.

The wage curve

Staggered Wage Setting in a Macro Model

The paper uses CPS data from 1964 to 1985 to test for the existence of rent-sharing in US tabor markets, Using an unbalanced panel from the manufacturing sector, and random-effects and fixed-effects specifications, the paper finds that changes in wages are explained by movements in lagged levels of profitability and unemployment. The results appear to be consistent with rent-sharing theory (or a labor contract framework with risk-averse firms) and to be inconsistent with the competitive labor market model. The paper estimates the unemployment elasticity of pay at approximately -0.03, and the profit elasticity of pay at between 0.02 and 0.05.

Wages, Profits and Rent-Sharing

The paper suggests a new test for rent-sharing in the U.S. labor market. Using an unbalanced
panel from the manufacturing sector, it shows that a rise in a sector's profitability leads after some
years to an increase in the long-run level of wages in that sector. The paper controls for workers'
characteristics, for industry fixed-effects, and for unionism. Lester's range of wages is estimated,
for rent-sharing reasons alone, at approximately 24 per cent of the mean wage.

/pdf/wages-profits-and-rent-sharing-pmvbtu3dc0.pdf

Wages, Profits, and Rent-Sharing

Macroeconomics : theory and policy

The determinants of contract length: An empirical analysis based on Canadian micro data

The concept of stable Phillips curves and their economic implications have been the subject of a series of disputes in recent years. Since Phillips introduced his simple disequilibrium model,empirical research in the field of wage determination has indicated a wide spectrum of explanatory variables which expands and contracts almost randomly in published studies. Apart from this difficulty in specification, the intertemporal instability of estimated coefficients for Phillips curve variants is particularly disturbing. In addition, the theoretical bases for many of these variants are unclear, and several economists have participated in a neo-classical counter-attack on the existence and stability of Phillips curves from a theoretical viewpoint. The objectives of this paper are to examine the consequences of certain invalid statistical procedures which are employed in many of these studies and to provide some empirical evidence of their effect. In particular, we focus attention on the implications of the aggregate procedure which provides the basis for the use of a "four quarter overlapping change" representation of the dependent variable in quarterly studies of wage determination and, also, for the use of moving averages of explanatory variables.

Quarterly Models of Wage Determination: Some New Efficient Estimates

The objective of this paper is to analyse the Canadian wage determination process using micro-data derived from individual union wage contracts, signed during the 1966-1975 time period. Conventional wage studies based on aggregate time series are subject to a number of important econometric criticisms arising from their failure to specify correctly the institutional features of the labour market (such as multi-year contracts, deferred increments and the variability of the bargaining calendar). Use of micro-data prior to aggregation not only avoids most of these institutional econometric problems, but also makes possible a precise investigation of several important theoretical and policy issues. In particular, it is possible to separate expected inflation from uncompensated past inflation and to investigate the impact of each type of inflation on the wage determination process. We also pay attention to the changing structure of the Canadian labour market and to the possible impact of the 1971 Unemployment Insurance Act (UIA) revision on Canadian wage inflation.

A Microeconometric Analysis of the Canadian Wage Determination Process

T HE objective of this paper is to develop and test models of wage spillovers utilizing a large micro data base constructed from Canadian collective bargaining wage contracts signed between 1966 and October 1975 (the introduction of wage controls in Canada). There are two basic approaches to the wage spillover hypothesis that can be found in the literature. 1 Institutional spillover models, characterized by Dunlop's wage contours and Ross' orbits of coercive comparisons, emphasize the distributional structure of wage rates between occupational-industrial groups. A second approach follows the tradition of microeconomic labour market theory and emphasizes relative wages, labour mobility, labour turnover costs, etc. For example, a simple Marshallian model would include both the firm's own wage rate as well as competing wage rates as determinants of labour supply (and consequently wage changes). More recently Phelps (1968) has proposed a generalized excess demand model of frictional labour markets in which a profit-maximizing firm establishes an optimal wage differential between its own wage rate and competing wage rates.2 Unfortunately it may be impossible to identify empirically the precise "theoretical" origin of wage spillover effects. The existence of wage spillovers is totally consistent with economic models of wage determination as well as being consistent with institutional hypotheses that emphasize key bargains, wage leadership, pattern wage adjustments, maintenance of "historical wage differentials," etc.3 Thus, our interpretation of the theoretical rationale for wage spillovers must, of necessity, be somewhat agnostic. Turning to the empirical evidence, three studies have advanced evidence pertaining to wage spillovers, each study based on a very different statistical methodology. Perhaps the classic study in this area is the Eckstein-Wilson (1962) paper which emphasizes a number of institutional aspects of the wage determination process. Eckstein and Wilson provide empirical evidence, based on the identification of specific wage rounds, supporting a combined market-institutional spillover model of wage determination within the U.S. manufacturing sector. For a "key group" of industries, identified largely from impressionistic evidence, wage changes are determined by profit and unemployment rates based on the aggregate rates for all industries within the key group. Outside the key group of industries, wages are principally determined by wage spillovers from the key group. Unfortunately, the underlying wage round technique employed by Eckstein and Wilson is notoriously difficult to implement, i.e., to identify unambiguous aggregate wage rounds. McGuire and Rapping (1967) have challenged the Eckstein-Wilson study on the grounds that at best their evidence lends weak support to their institutional hypothesis, that their central result for the key group of industries is ambiguous, and finally that they have not resolved the problem of distinguishing between neo-classical labour supply forces and institutional spillover effects. McGuire and Rapping's own model (1968), which is tested with cross-sectional data (industries at the state level), reveals that while market forces play an important role in the relative wage determination process for the U.S. manufacturing sector, wage spillovers from steel and automobile key bargains (particularly steel) are also relevant explanatory variables. Received for publication July 13, 1978. Revision accepted for publication May 23, 1979. * University of Guelph. We gratefully acknowledge the helpful comments that we have received from Doug Auld, David Dodge, Mark Mueller, and John Vanderkamp. This paper could not have been written without the financial support of the Anti-Inflation Board and the diligence of an exceptionally fine research assistant, Jane Forster. None of the above-named individuals, nor the Anti-Inflation Board, should be held responsible for the arguments and conclusions of this paper. 1 For a thorough review and critique of spillover theories, see Burton and Addison (1977). 2 This optimal wage differential takes into account the turnover costs associated with recruiting, hiring, and training new workers. 3 For further discussion of this "identification problem," see Addison and Burton (1979). [ 213 ]

David A. Wilton

Papers

Macroeconomics : theory and policy

The determinants of contract length: An empirical analysis based on Canadian micro data

Quarterly Models of Wage Determination: Some New Efficient Estimates

A Microeconometric Analysis of the Canadian Wage Determination Process

A Microeconometric Analysis of Spillovers within the Canadian Wage Determination Process