Wage setting

  • Who benefits from the minimum wage—natives or migrants?

    There is no evidence that increases in the minimum wage have hurt immigrants

    Madeline Zavodny, December 2014
    According to economic theory, a minimum wage reduces the number of low-wage jobs and increases the number of available workers, allowing greater hiring selectivity. More competition for a smaller number of low-wage jobs will disadvantage immigrants if employers perceive them as less skilled than native-born workers—and vice versa. Studies indicate that a higher minimum wage does not hurt immigrants, but there is no consensus on whether immigrants benefit at the expense of natives. Studies also reach disparate conclusions on whether higher minimum wages attract or repel immigrants.
  • Cash wage payments in transition economies: Consequences of envelope wages Updated

    Reducing under-reporting of salaries requires institutional changes

    In transition economies, a significant number of companies reduce their tax and social contributions by paying their staff an official salary, described in a registered formal employment agreement, and an extra, undeclared “envelope wage,” via a verbal unwritten agreement. The consequences include a loss of government income and a lack of fair play for lawful companies. For employees, accepting under-reported wages reduces their access to credit and their social protections. Addressing this issue will help increase the quality of working conditions, strengthen trade unions, and reduce unfair competition.
  • Employment and wage effects of extending collective bargaining agreements Updated

    Sectoral collective contracts reduce inequality but may lead to job losses among workers with earnings close to the wage floors

    In many countries, the wage floors and working conditions set in collective contracts negotiated by a subset of employers and unions are subsequently extended to all employees in an industry. Those extensions ensure common working conditions within the industry, mitigate wage inequality, and reduce gender wage gaps. However, little is known about the so-called bite of collective contracts and whether they limit wage adjustments for all workers. Evidence suggests that collective contract benefits come at the cost of reduced employment levels, though typically only for workers earning close to the wage floors.
  • Rethinking the skills gap

    Better understanding of skills mismatch is essential to finding effective policy options

    Evidence suggests that productivity would be much higher and unemployment much lower if the supply of and demand for skills were better matched. As a result, skills mismatch between workers (supply) and jobs (demand) commands the ongoing attention of policymakers in many countries. Policies intended to address the persistence of skills mismatch focus on the supply side of the issue by emphasizing worker education and training. However, the role of the demand side, that is, employers’ wage-setting practices, garners comparatively little policy attention.
  • Do in-work benefits work for low-skilled workers? Updated

    To boost the employment rate of the low-skilled trapped in inactivity is it sufficient to supplement their earnings?

    High risk of poverty and low employment rates are widespread among low-skilled groups, especially in the case of some household compositions (e.g. single mothers). “Making-work-pay” policies have been advocated for and implemented to address these issues. They alleviate the above-mentioned problems without providing a disincentive to work. However, do they deliver on their promises? If they do reduce poverty and enhance employment, is it possible to determine their effects on indicators of well-being, such as mental health and life satisfaction, or on the acquisition of human capital?
  • How does international trade affect household welfare?

    Households can benefit from international trade as it lowers the prices of consumer goods

    Beyza Ural Marchand, August 2017
    Imported products tend to have lower prices than locally produced ones for a variety of reasons, including lower labor costs and better technology in the exporting country. The reduced prices may lead to wage losses for individuals who work in the production of a local version of the imported item. On the other hand, lower prices may be beneficial to households if the cheaper product is in their consumption basket. These welfare gains through consumption, on average, are found to be larger in magnitude than the wage effect for some developing countries.
  • Unions and investment in intangible capital

    When workers and firms cannot commit to long-term contracts and capital investments are sunk, union power can reduce investment

    Giovanni Sulis, November 2015
    Although coverage of collective bargaining agreements has been declining for decades in most countries, it is still extensive, especially in non-Anglo-Saxon countries. Strong unions may influence firms’ incentives to invest in capital, particularly in sectors where capital investments are sunk (irreversible), as in research-intensive sectors. Whether unions affect firms’ investment in capital depends on the structure and coordination of bargaining, the preference of unions between wages and employment, the quality of labor-management relations, and the existence of social pacts, among other factors.
  • Do workers work more when earnings are high?

    Studies of independent contractors suggest that workers’ effort may be more responsive to wage incentives than previously thought

    Tess M. Stafford, November 2018
    A fundamental question in economic policy is how labor supply responds to changes in remuneration. The responsiveness of labor supply determines the size of the employment impact and efficiency loss of progressive income taxation. It also affects predictions about the impacts of policies ranging from fiscal responses to business cycles to government transfer programs. The characteristics of jobs held by independent contractors provide an opportunity to overcome problems faced by earlier studies and help answer this fundamental question.
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