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The Division of Revenues from Unexpected Demand Shocks

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  • Paulo Bastos
  • Monteiro,Natalia P.
  • Straume,Odd Rune

Abstract

This paper exploits gaps between observed and recently forecasted Gross Domestic Product growth in export destinations to estimate the effects of unexpected demand shocks on worker compensation. Using employer-employee panel data, the paper finds that the revenues from these demand shocks are partly transmitted to workers in the form of higher average wages, especially close to the top of the within-firm wage distribution. These wage responses occur both in the form of higher overtime payment and base wage increases. The findings also show that there are significant increases in bonus-related pay in firms managed by high-skilled managers, and the unequal average distribution of unexpected revenues is also mainly driven by wage effects in the same subset of firms. This suggests that the way in which revenues from unexpected demand shocks are transmitted to workers is significantly related to managerial capabilities.

Suggested Citation

  • Paulo Bastos & Monteiro,Natalia P. & Straume,Odd Rune, 2024. "The Division of Revenues from Unexpected Demand Shocks," Policy Research Working Paper Series 10925, The World Bank.
    • Handle: RePEc:wbk:wbrwps:10925
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