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Wage adjustment and productivity shocks

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Author Info

  • Carlsson, Mikael

    ()
    (Sveriges Riksbank)

  • Messina, Julián

    ()
    (World Bank)

  • Nordström Skans, Oskar

    ()
    (IFAU - Institute for Labour Market Policy Evaluation)

Abstract

We study how workers' wages respond to TFP-driven innovations in firms' labor productivity. Using unique data with highly reliable firm-level output prices and quantities in the manufacturing sector in Sweden, we are able to derive measures of physical (as opposed to revenue) TFP to instrument labor productivity in the wage equations. We find that the reaction of wages to sectoral labor productivity is almost three times lager than the response to pure idiosyncratic (firm-level) shocks, a result which crucially hinges on the use of physical TFP as an instrument. These results are all robust to a number of empirical specifications, including models accounting for selection on both the demand and supply side through worker-firm (match) fixed effects. Further results suggest that technological progress at the firm level has negligible effects on the firm-level composition of employees.

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Bibliographic Info

Paper provided by IFAU - Institute for Evaluation of Labour Market and Education Policy in its series Working Paper Series with number 2011:9.

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Length: 57 pages
Date of creation: 11 May 2011
Date of revision:
Handle: RePEc:hhs:ifauwp:2011_009

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Postal: IFAU, P O Box 513, SE-751 20 Uppsala, Sweden
Phone: (+46) 18 - 471 70 70
Fax: (+46) 18 - 471 70 71
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Web page: http://www.ifau.se/
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Related research

Keywords: Matched employer-employee data; Sorting; Wage; Labor productivity; TFP;

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References

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  1. Pedro Martins, 2009. "Rent sharing before and after the wage bill," Applied Economics, Taylor & Francis Journals, vol. 41(17), pages 2133-2151.
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  3. Mikael Carlsson, 2003. "Measures of Technology and the Short-run Response to Technology Shocks," Scandinavian Journal of Economics, Wiley Blackwell, vol. 105(4), pages 555-579, December.
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Citations

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Cited by:
  1. Kline, Patrick & Moretti, Enrico, 2013. "Place Based Policies with Unemployment," IZA Discussion Papers 7180, Institute for the Study of Labor (IZA).
  2. Hensvik, Lena, 2011. "Manager impartiality? Worker-firm matching and the gender wage gap," Working Paper Series 2011:22, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  3. Sean Dougherty & Verónica Frisancho Robles & Kala Krishna, 2011. "Employment Protection Legislation and Plant-Level Productivity in India," OECD Economics Department Working Papers 917, OECD Publishing.
  4. Card, David & Cardoso, Ana Rute & Kline, Patrick, 2013. "Bargaining and the Gender Wage Gap: A Direct Assessment," IZA Discussion Papers 7592, Institute for the Study of Labor (IZA).

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