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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

    ()
    (Uppsala University)

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 Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5719.

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Length: 59 pages
Date of creation: May 2011
Date of revision:
Handle: RePEc:iza:izadps:dp5719

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Keywords: matched employer-employee data; sorting; wage; labor productivity; TFP;

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  1. Irarrazabal, Alfonso & Moxnes, Andreas & Ulltveit-Moe, Karen-Helene, 2009. "Heterogeneous firms or heterogeneous workers? Implications for the exporter premium and the impact of labor reallocation on productivity," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7577, C.E.P.R. Discussion Papers.
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  10. Mikael Carlsson, 2003. "Measures of Technology and the Short-run Response to Technology Shocks," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 105(4), pages 555-579, December.
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Citations

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Cited by:
  1. Patrick Kline & Enrico Moretti, 2013. "Place Based Policies with Unemployment," NBER Working Papers 18758, National Bureau of Economic Research, Inc.
  2. 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).
  3. 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.
  4. Hensvik, Lena, 2011. "Manager impartiality? Worker-firm matching and the gender wage gap," Working Paper Series, IFAU - Institute for Evaluation of Labour Market and Education Policy 2011:22, IFAU - Institute for Evaluation of Labour Market and Education Policy.

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