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A Multisector Perspective on Wage Stagnation

Author

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  • L. Rachel Ngai

    (London School of Economics (LSE)
    Centre for Macroeconomics (CFM)
    Centre for Economic Policy Research (CEPR))

  • Orhun Sevinc

    (Central Bank of the Republic of Turkey
    Centre for Macroeconomics (CFM))

Abstract

Low-skill workers are concentrated in sectors that experience fast productivity growth and yet their wages have been stagnating. We document evidence from U.S. states to show that a multisector perspective is crucial to understanding this divergence and stagnation. The key mechanism is a reallocation of low-skill workers from high productivity growth sectors to sectors with slower growth. We show this in a multisector model in which the faster productivity growth causes a fall in the relative price of the low-skill sector, whose output is complementary to the output of the high-skill sector. The model accounts for low-skill wage stagnation, its divergence from aggregate productivity and the rise in wage inequality during 1980- 2010.

Suggested Citation

  • L. Rachel Ngai & Orhun Sevinc, 2020. "A Multisector Perspective on Wage Stagnation," Discussion Papers 2026, Centre for Macroeconomics (CFM).
    • Handle: RePEc:cfm:wpaper:2026
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    References listed on IDEAS

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    Cited by:

    1. Diego Comin & Ana Danieli & Martí Mestieri, 2020. "Income-Driven Labor-Market Polarization," Working Paper Series WP-2020-22, Federal Reserve Bank of Chicago.
    2. Duc Nguyen, 2022. "Heterogeneous Paths of Structural Transformation," Working Papers tecipa-742, University of Toronto, Department of Economics.

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    More about this item

    Keywords

    Wage stagnation; Wage-productivity divergence; Wage inequality; Multisector model;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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