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Wage adjustment and productivity shocks

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Author Info

  • Carlsson, Mikael

    ()
    (Research Department, Sveriges Riksbank)

  • Messin, Julián

    ()
    (Office of the Chief Economist for Latin America and the Caribbean,)

  • Nordström Skans, Oskar

    ()
    (Uppsala Center for Labor Studies)

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 larger 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 Uppsala University, Department of Economics in its series Working Paper Series, Center for Labor Studies with number 2011:14.

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Length: 57 pages
Date of creation: 11 May 2011
Date of revision:
Handle: RePEc:hhs:uulswp:2011_014

Contact details of provider:
Postal: Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden
Phone: + 46 18 471 25 00
Fax: + 46 18 471 14 78
Email:
Web page: http://www.nek.uu.se/
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Keywords: Matched employer-employee data; sorting; wage; labor productivity; TFP;

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References

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  1. Haefke, Christian & Sonntag, Marcus & van Rens, Thijs, 2013. "Wage rigidity and job creation," Journal of Monetary Economics, Elsevier, vol. 60(8), pages 887-899.
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  6. Oskar Nordström Skans & Per-Anders Edin & Bertil Holmlund, 2007. "Wage dispersion between and within plants: Sweden 1985-2000," NBER Working Papers 13021, National Bureau of Economic Research, Inc.
  7. 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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  12. Guiso, Luigi & Pistaferri, Luigi & Schivardi, Fabiano, 2001. "Insurance Within the Firm," CEPR Discussion Papers 2793, C.E.P.R. Discussion Papers.
  13. Carlsson, Mikael & Smedsaas, Jon, 2006. "Technology Shocks and the Labor-Input Response: Evidence from Firm-Level Data," Working Paper Series 198, Sveriges Riksbank (Central Bank of Sweden).
  14. Pedro S. Martins, 2008. "Rent Sharing Before and After the Wage Bill," Working Papers 12, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research.
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Cited by:
  1. Sean Dougherty & Verónica C. Frisancho Robles & Kala Krishna, 2011. "Employment Protection Legislation and Plant-Level Productivity in India," NBER Working Papers 17693, National Bureau of Economic Research, Inc.
  2. Kline, Patrick & Moretti, Enrico, 2013. "Place Based Policies with Unemployment," IZA Discussion Papers 7180, Institute for the Study of Labor (IZA).
  3. 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).
  4. 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.

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