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The Wage Response to Shocks: The Role of Inter-Occupational Labour Adjustment

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  • Tschopp, Jeanne

Abstract

How do cities' average wages adjust to a shock, e.g. trade-induced or technology-induced, shifting the industrial and/or occupational composition of employment? This question is commonly answered using a shift-share analysis, which imputes the effects of composition changes on cities' average wages in a purely mechanical way. This paper argues that a shift-share approach can be misleading if compositional shifts spill over into industrial and occupational wages. Using data on Germany, this paper finds that the spillover effects from a shift in industrial and occupational composition are large and imply a total effect on cities' average wages of 2.8 times the effect that is predicted by a shift-share exercise. In addition, results indicate that in the case of Germany, accounting for adjustments along the occupational mix is crucial to identify these spillovers, even if one is only interested in the effect of an industry-specific shock.

Suggested Citation

  • Tschopp, Jeanne, 2015. "The Wage Response to Shocks: The Role of Inter-Occupational Labour Adjustment," Labour Economics, Elsevier, vol. 37(C), pages 28-37.
  • Handle: RePEc:eee:labeco:v:37:y:2015:i:c:p:28-37
    DOI: 10.1016/j.labeco.2015.08.003
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    2. Germàn Pupato & Ben Sand & Jeanne Tschopp, 2019. "Estimating the Gains from Trade in Frictional Local Labor Markets," Diskussionsschriften dp1909, Universitaet Bern, Departement Volkswirtschaft.
    3. Joao Galindo da Fonseca & Charles Berubé, 2020. "Spouses, Children and Entrepreneurship," Cahiers de recherche 05-2020, Centre interuniversitaire de recherche en économie quantitative, CIREQ.

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    More about this item

    Keywords

    Wages; Worker mobility; Spillovers; Industrial and occupational composition; Local labour markets;
    All these keywords.

    JEL classification:

    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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