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A Multisector Perspective on Wage Stagnation

Author

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  • Ngai, Liwa Rachel
  • Sevinc, Orhun

Abstract

Low-skill workers are concentrated in sectors that experience fast productivity growth and yet their wages have been stagnating. A multisector perspective is crucial to understand this stagnation as it is not due to an overall stagnation in the marginal product of low-skill workers but a labour reallocation into sectors with slower growth. We show this in a two-sector model where the faster productivity growth causes a fall in the relative price of the low-skill intensive output, which consists of capital and a consumption good that is a complement to the high-skill intensive output. When calibrated to the U.S., the model accounts for a substantial part of the low-skill wage stagnation and its divergence from aggregate productivity during 1980-2010.

Suggested Citation

  • Ngai, Liwa Rachel & Sevinc, Orhun, 2020. "A Multisector Perspective on Wage Stagnation," CEPR Discussion Papers 14855, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:14855
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    Cited by:

    1. Diego A. Comin & Ana Danieli & Martí Mestieri, 2020. "Income-driven Labor Market Polarization," NBER Working Papers 27455, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    Multisector model; Wage stagnation; Wage-productivity divergence;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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