The Last Word on the Wage Curve?
AbstractIn the last decade we have seen extensive international research on the extent to which wages of individuals respond to changing local labour market conditions. For many countries and periods, an inverse relationship between wages and unemployment rates has been found. Following Blanchflower and Oswald (1990), this relationship is referred to as the wage curve. The elasticity of this wage curve has been reported to be so similar across studies, at a level of about -0.1, that Card (1995) called it an "empirical law of economics". However, there is considerable heterogeneity among wage curve studies. This paper carries out modern meta-analytic techniques on a sample of 208 elasticities derived from the literature to uncover the reasons for the differences in empirical results across studies. It is found that the wage curve is a robust empirical phenomenon, but there is also clear evidence of downward publication bias. In addition, many reported t statistics are biased upwards due to the use of aggregate unemployment rates and other labour market characteristics for groups. A maximum likelihood method and a trimming procedure are used to correct for these biases. Both methods give similar results for our sample. An unbiased estimate of the wage curve elasticity is about -0.07.
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Bibliographic InfoPaper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 02-029/3.
Date of creation: 21 Mar 2002
Date of revision: 13 Mar 2003
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Web page: http://www.tinbergen.nl
wage curve; meta-analysis; publication bias;
Other versions of this item:
- C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
- C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
- R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
This paper has been announced in the following NEP Reports:
- NEP-ALL-2002-04-15 (All new papers)
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