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.
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  • Wage policies in the public sector during wholesale privatization

    Does the transition to market economies imply growing wage inequality and, if so, along what dimensions?

    Jelena Nikolic, October 2017
    Examining the implications of changes in public sector wage-setting arrangements due to privatization is a relatively new area of economics research, with few studies having analyzed the effects of public sector restructuring on relative wages in developed countries. There is, however, a growing empirical literature that measures the effects of transitioning from central planning to market-based systems on public–private sector wage differentials. Policymakers can learn from this evidence about the ways in which ownership transformation affects the distribution of wages in both the public and private employment sectors.
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  • Wage compression and the gender pay gap

    Wage-setting institutions narrow the gender pay gap but may reduce employment for some women

    Lawrence M. Kahn, April 2015
    There are large international differences in the gender pay gap. In some developed countries in 2010–2012, women were close to earnings parity with men, while in others large gaps remained. Since women and men have different average levels of education and experience and commonly work in different industries and occupations, multiple factors can influence the gender pay gap. Among them are skill supply and demand, unions, and minimum wages, which influence the economywide wage returns to education, experience, and occupational wage differentials. Systems of wage compression narrow the gender pay gap but may also lower demand for female workers.
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  • Unions and investment in intangible capital Updated

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

    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, the structure of corporate governance, and the existence of social pacts, among other factors.
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  • Union wage effects

    What are the economic implications of union wage bargaining for workers, firms, and society?

    Alex Bryson, July 2014
    Despite declining bargaining power, unions continue to generate a wage premium. Some feel collective bargaining has had its day. Politicians on both sides of the Atlantic have recently called for the removal of bargaining rights from workers in the name of wage and employment flexibility, yet unions often work in tandem with employers for mutual gain based on productivity growth. If this is where the premium originates, then firms and workers benefit. Without unions bargaining successfully to raise worker wages, income inequality would almost certainly be higher than it is.
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  • The rise and fall of piecework

    Incidence of piecework has significantly reduced in advanced industrialized economies—has its decline gone too far?

    Robert A. Hart, April 2016
    A pieceworker receives a fixed rate for each unit (“piece”) produced or action performed. In part, the rate reflects a cost of monitoring output. A timeworker receives a fixed wage rate per hour that, in the short term, does not vary with output performance. From the 18th century up to the last third of the 20th century these were the two dominant payment methods in the manufacturing and production industries. Yet, today the incidence of piecework in advanced economies is very small, having lost considerable ground to time rates and to other forms of incentive pay. What caused this transformation, and has the movement away from piecework gone too far?
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  • The minimum wage versus the earned income tax credit for reducing poverty Updated

    Enhancing the earned income tax credit would do more to reduce poverty, at less cost, than increasing the minimum wage

    Minimum wage increases are not an effective mechanism for reducing poverty. And there is little causal evidence that they do so. Most workers who gain from minimum wage increases do not live in poor (or near-poor) families, while some who do live in poor families lose their job as a result of such increases. The earned income tax credit is an effective way to reduce poverty. It raises only the after-tax wage rates of workers in low- and moderate-income families, the tax credit increases with the number of dependent children, and evidence shows that it increases labor force participation and employment in these families.
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