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Wage adjustment and productivity shocks

  • Carlsson, Mikael


    (Research Department, Sveriges Riksbank)

  • Messin, Julián


    (Office of the Chief Economist for Latin America and the Caribbean,)

  • Nordström Skans, Oskar


    (Uppsala Center for Labor Studies)

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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Paper provided by Uppsala University, Department of Economics in its series Working Paper Series, Center for Labor Studies with number 2011:14.

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Length: 57 pages
Date of creation: 11 May 2011
Date of revision:
Handle: RePEc:hhs:uulswp:2011_014
Contact details of provider: Postal: Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden
Phone: + 46 18 471 25 00
Fax: + 46 18 471 14 78
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  33. repec:inr:wpaper:150201 is not listed on IDEAS
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