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Structural change in U.S. wage determination

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Listed author(s):
  • Robert W. Rich
  • Donald Rissmiller

Abstract

This paper provides an empirical investigation into the determinants and stability of the aggregate wage inflation process in the United States over the 1967-2000 period. Using compensation per hour as the measure of wages, we specify a Phillips curve model that links wage growth to its past values as well as to the unemployment rate, price inflation, labor productivity growth, and an additional set of labor market variables. The results do not reject the hypothesis that real wages and labor productivity move proportionally in the long run. More important, endogenous structural break tests provide little evidence of model instability. We conclude that aggregate wage determination has remained stable over the last thirty years and that any recent shift in the inflation-unemployment relationship reflects developments outside the labor market.

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Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 117.

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Date of creation: 2001
Handle: RePEc:fip:fednsr:117
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Keywords: Inflation (Finance) ; Wages ; Labor productivity;

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  8. Flint Brayton & John M. Roberts & John C. Williams, 1999. "What's happened to the Phillips curve?," Finance and Economics Discussion Series 1999-49, Board of Governors of the Federal Reserve System (U.S.).
  9. Douglas O. Staiger & James H. Stock & Mark W. Watson, 1997. "How Precise Are Estimates of the Natural Rate of Unemployment?," NBER Chapters,in: Reducing Inflation: Motivation and Strategy, pages 195-246 National Bureau of Economic Research, Inc.
  10. Cara S. Lown & Robert W. Rich, 1997. "Is there an inflation puzzle?," Economic Policy Review, Federal Reserve Bank of New York, issue Dec, pages 51-77.
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  12. Lawrence F. Katz & Alan B. Krueger, 1999. "The High-Pressure U.S. Labor Market of the 1990s," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 30(1), pages 1-88.
  13. Wayne Vroman & John M. Abowd, 1988. "Disaggregated Wage Developments," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 313-346.
  14. Francine D. Blau & Lawrence M. Kahn, 1992. "Race and Gender Pay Differentials," NBER Working Papers 4120, National Bureau of Economic Research, Inc.
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  16. Tulip Peter, 2004. "Do Minimum Wages Raise the NAIRU?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 4(1), pages 1-36, April.
  17. George A. Akerlof & William T. Dickens & George L. Perry, 2000. "Near-Rational Wage and Price Setting and the Long-Run Phillips Curve," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 31(1), pages 1-60.
  18. Hansen, Bruce E., 2000. "Testing for structural change in conditional models," Journal of Econometrics, Elsevier, vol. 97(1), pages 93-115, July.
  19. Andrews, Donald W K & Ploberger, Werner, 1994. "Optimal Tests When a Nuisance Parameter Is Present Only under the Alternative," Econometrica, Econometric Society, vol. 62(6), pages 1383-1414, November.
  20. Budd, J.W. & Nho, Y., 1995. "Testing for a Structurak Change in U.S. Wage Determination," Papers 95-03, Minnesota - Industrial Relations Center.
  21. Jeffrey C. Fuhrer, 1995. "The Phillips curve is alive and well," New England Economic Review, Federal Reserve Bank of Boston, issue Mar, pages 41-56.
  22. Robert W. Rich & Donald Rissmiller, 2000. "Understanding the recent behavior of U.S. inflation," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 6(Jul).
  23. David E. Lebow & Louise Sheiner & Lawrence Slifman & Martha Starr-McCluer, 1999. "Recent trends in compensation practices," Finance and Economics Discussion Series 1999-32, Board of Governors of the Federal Reserve System (U.S.).
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