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Nonlinear Wage Responses to Internal and External Factors

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  • Kåre Johansen

    ()
    (Department of Economics, Norwegian University of Science and Technology)

Abstract

The paper tests whether or not the effects on sectoral wages of internal and external factors depend upon the sector’s relative wage position. The key hypothesis is that workers in low—wage sectors are more concerned with relative wages than workers in high wage sectors. To test the hypothesis, we make use of panel data and formulate a smooth transition regression model including relative wages as the transition variable. The empirical results provide strong evidence of nonlinear wage responses to industry profitability, outside wages and unemployment. The estimated long—run insider weight and the unemployment effect are much higher in high—wage industries than in low—wage industries. The main results are robust to alternative transformations of the unemployment rate and we also provide some evidence of nonlinear effects using regional panel data.

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Bibliographic Info

Paper provided by Department of Economics, Norwegian University of Science and Technology in its series Working Paper Series with number 0902.

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Length: 27 pages
Date of creation:
Date of revision: 25 Aug 2002
Handle: RePEc:nst:samfok:0902

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Keywords: Insider forces; panel data; nonlinear modelling;

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  1. Nickell, Stephen J, 1987. "Why Is Wage Inflation in Britain So High?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 49(1), pages 103-28, February.
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  8. Gylfason, Thorvaldur & Lindbeck, Assar, 1984. "Union Rivalry and Wages: An Oligopolistic Approach," Economica, London School of Economics and Political Science, vol. 51(202), pages 129-39, May.
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  17. Pesaran, H. & Smith, R. & Im, K.S., 1995. "Dynamic Linear Models for Heterogeneous Panels," Cambridge Working Papers in Economics 9503, Faculty of Economics, University of Cambridge.
  18. Johansen, Kare, 1996. "Insider Forces, Asymmetries, and Outsider Ineffectiveness: Empirical Evidence for Norwegian Industries 1966-87," Oxford Economic Papers, Oxford University Press, vol. 48(1), pages 89-104, January.
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Cited by:
  1. Jonathan Thomas, 2000. "Fair Pay and a Wagebill Argument for Wage Rigidity and Excessive Employment Variability," CESifo Working Paper Series 234, CESifo Group Munich.

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