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Interpreting Aggregate Wage Growth: The Role of Labor Market Participation

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Author Info
Richard Blundell
Howard Reed
Thomas M. Stoker

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Abstract

A new and easily implementable framework for the empirical analysis of the relationship between aggregate and individual wages is developed. Aggregate real wages are shown to contain three important bias terms: one associated with the dispersion of individual wages, a second deriving from compositional changes in the (selected) sample of workers, and a third reflecting the distribution of working hours. Their importance for interpreting the path of aggregate wages and of the returns to education for recent experience in Britain is highlighted. A close correspondence between the estimated biases and the patterns of differences shown by aggregate wages is established. (JEL C34, E24, J31)

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File URL: http://hdl.handle.net/10.1257/000282803769206223
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Publisher Info
Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 93 (2003)
Issue (Month): 4 (September)
Pages: 1114-1131
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Handle: RePEc:aea:aecrev:v:93:y:2003:i:4:p:1114-1131

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Heckman, James J, 1974. "Shadow Prices, Market Wages, and Labor Supply," Econometrica, Econometric Society, vol. 42(4), pages 679-94, July. [Downloadable!] (restricted)
  2. Bils, Mark J, 1985. "Real Wages over the Business Cycle: Evidence from Panel Data," Journal of Political Economy, University of Chicago Press, vol. 93(4), pages 666-89, August. [Downloadable!] (restricted)
  3. David Card & Thomas Lemieux, 2001. "Can Falling Supply Explain The Rising Return To College For Younger Men? A Cohort-Based Analysis," The Quarterly Journal of Economics, MIT Press, vol. 116(2), pages 705-746, May. [Downloadable!] (restricted)
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  4. Robinson, Peter M, 1988. "Root- N-Consistent Semiparametric Regression," Econometrica, Econometric Society, vol. 56(4), pages 931-54, July. [Downloadable!] (restricted)
  5. repec:att:wimass:19901 is not listed on IDEAS
  6. Heckman, James J & Sedlacek, Guilherme, 1985. "Heterogeneity, Aggregation, and Market Wage Functions: An Empirical Model of Self-selection in the Labor Market," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1077-1125, December. [Downloadable!] (restricted)
  7. Cogan, John F, 1981. "Fixed Costs and Labor Supply," Econometrica, Econometric Society, vol. 49(4), pages 945-63, June. [Downloadable!] (restricted)
  8. Gosling, Amanda & Machin, Stephen & Meghir, Costas, 2000. "The Changing Distribution of Male Wages in the U.K," Review of Economic Studies, Blackwell Publishing, vol. 67(4), pages 635-66, October.
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  9. Ahn, Hyungtaik & Powell, James L., 1993. "Semiparametric estimation of censored selection models with a nonparametric selection mechanism," Journal of Econometrics, Elsevier, vol. 58(1-2), pages 3-29, July. [Downloadable!] (restricted)
  10. Newey, Whitney K & Powell, James L & Walker, James R, 1990. "Semiparametric Estimation of Selection Models: Some Empirical Results," American Economic Review, American Economic Association, vol. 80(2), pages 324-28, May. [Downloadable!] (restricted)
  11. Solon, Gary & Barsky, Robert & Parker, Jonathan A, 1994. "Measuring the Cyclicality of Real Wages: How Important Is Composition Bias?," The Quarterly Journal of Economics, MIT Press, vol. 109(1), pages 1-25, February. [Downloadable!] (restricted)
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  1. Audra J. Bowlus & Haoming Liu & Chris Robinson, 2005. "Human Capital, Productivity and Growth," University of Western Ontario, CIBC Human Capital and Productivity Project Working Papers 20052, University of Western Ontario, CIBC Human Capital and Productivity Project. [Downloadable!]
  2. Giuseppe Bertola & Francine Blau & Lawrence Kahn, 2007. "Labor market institutions and demographic employment patterns," Journal of Population Economics, Springer, vol. 20(4), pages 833-867, October. [Downloadable!] (restricted)
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  3. Paul Bingley & Kaare Christensen & Ian Walker, 2007. "The Returns to Observable and Unobservable Skills over time: Evidence from a Panel of the Population of Danish Twins," Working Papers 200723, Geary Institute, University College Dublin. [Downloadable!]
  4. J. Elhorst, 2008. "A spatiotemporal analysis of aggregate labour force behaviour by sex and age across the European Union," Journal of Geographical Systems, Springer, vol. 10(2), pages 167-190, June. [Downloadable!] (restricted)
  5. Michal Myck & Leszek Morawski & Jerzy Mycielski, 2006. "Employment Fluctuations and Dynamics of the Aggregate Average Wage in Poland 1996 - 2003," Discussion Papers of DIW Berlin 545, DIW Berlin, German Institute for Economic Research. [Downloadable!]
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  6. Myck, Michal & Nicinska, Anna & Morawski, Leszek, 2009. "Count Your Hours: Returns to Education in Poland," IZA Discussion Papers 4332, Institute for the Study of Labor (IZA). [Downloadable!]
  7. Blundell, Richard & Gosling, Amanda & Ichimura, Hidehiko & Meghir, Costas, 2004. "Changes in the Distribution of Male and Female Wages Accounting for Employment Composition Using Bounds," IZA Discussion Papers 1350, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  8. James J. Heckman & Lance J. Lochner & Petra E. Todd, 2005. "Earnings Functions, Rates of Return and Treatment Effects: The Mincer Equation and Beyond," NBER Working Papers 11544, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  9. Michal Myck, 2007. "Wages and Ageing: Is There Evidence for the "Inverse-U" Profile?," IZA Discussion Papers 2983, Institute for the Study of Labor (IZA). [Downloadable!]
  10. Pedro Carneiro & Sokbae 'Simon' Lee, 2009. "Trends in quality-adjusted skill premia in the United States, 1960-2000," CeMMAP working papers CWP02/09, Centre for Microdata Methods and Practice, Institute for Fiscal Studies. [Downloadable!]
  11. Costas Meghir & David Phillips, 2008. "Labour supply and taxes," IFS Working Papers W08/04, Institute for Fiscal Studies. [Downloadable!]
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  12. James J. Heckman & Dimitriy V. Masterov, 2005. "Allander Series: Skill Policies for Scotland," NBER Working Papers 11032, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. Audra J. Bowlus & Chris Robinson, 2004. "Technological Change in the Production of Human Capital: Implications for Human Capital Stocks, Wages and Skill Differentials," University of Western Ontario, CIBC Human Capital and Productivity Project Working Papers 20041, University of Western Ontario, CIBC Human Capital and Productivity Project. [Downloadable!]
    Other versions:
  14. Heckman, James J. & Masterov, Dimitriy V., 2004. "Skill Policies for Scotland," IZA Discussion Papers 1444, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
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