Shifting Norms in Wage Determination

Mitchell, Daniel J. B.; Abraham, Katharine G.

doi:10.2307/2534446

Cited by 57 publications

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“…If we make workers' bargaining power a decreasing function of the number of firms offshoring, it would be possible to show a decrease in wages resulting from offshoring. This would be similar in spirit to the Mitchell (1985) description of "norm shift" in wage determination. Since our focus in the present paper is on unemployment effects of offshoring, we do not pursue this extension in the present paper.…”

Section: Resultsmentioning

confidence: 65%

Offshoring and Unemployment

Mitra¹,

Ranjan²

2007

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Offshoring and Unemployment Devashish Mitra Priya Ranjan D I S C U S S I O N P A P E R S E R I E S ABSTRACT Offshoring and Unemployment *In this paper, in order to study the impact of offshoring on sectoral and economywide rates of unemployment, we construct a two sector general equilibrium model in which labor is mobile across the two sectors, and unemployment is caused by search frictions. We find that, contrary to general perception, wage increases and sectoral unemployment decreases due to offshoring. This result can be understood to arise from the productivity enhancing (cost reducing) effect of offshoring. If the search cost is identical in the two sectors, or even if the search cost is higher in the sector which experiences offshoring, the economywide rate of unemployment decreases. We also find multiple equilibrium outcomes in the extent of offshoring and therefore, in the unemployment rate. Furthermore, a firm can increase its domestic employment through offshoring. Also, such a firm's domestic employment can be higher than a firm that chooses to remain fully domestic. When we modify the model to disallow intersectoral labor mobility, the negative relative price effect on the sector in which firms offshore some of their activity becomes stronger. In such a case, it is possible for this effect to offset the positive productivity effect, and result in a rise in unemployment in that sector. In the other sector, offshoring has a much stronger unemployment reducing effect in the absence of intersectoral labor mobility than in the presence of it. Finally, allowing for an endogenous number of varieties provides an additional indirect channel, through which sectoral unemployment goes down due to the entry of new firms brought about by offshoring.JEL Classification: F1

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Section: Resultsmentioning

confidence: 65%

Offshoring and Unemployment

Mitra¹,

Ranjan²

2007

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“…Several studies [Mitchell (1985[Mitchell ( , 1987, Gordon (1988) recent declines in unemployment and wage pressure. The hypotheses include changing demographic trends in the labor force, increased job insecurity, improved efficiency in labor market matching, and the increased degree of incarceration among low-skilled workers.…”

Section: Aggregate Labor-cost Inflation: a Literature Reviewmentioning

confidence: 99%

“…Several studies [Mitchell (1985[Mitchell ( , 1987, Gordon (1988), Vroman and Abowd (1988)] document a consistent overprediction of wage inflation during the 1980s based on estimated Phillips curve equations. Because the restraint in nominal wage growth coincided with an accelerated decline in union strength, it was thought that the two occurrences might be causally linked.…”

Section: Aggregate Labor-cost Inflation: a Literature Reviewmentioning

confidence: 99%

“…Moreover, interest in the stability of aggregate wage determination did not originate with events transpiring during the current expansion. In particular, several studies [Mitchell (1985[Mitchell ( , 1987, Gordon (1988), Vroman and Abowd (1988), Neumark (1993), Neumark and Leonard (1993), Budd and Nho (1997)] have examined the behavior of aggregate labor-cost inflation and reported evidence of a breakdown in the early 1980s in estimated Phillips curves.This paper provides an empirical investigation into the determinants and stability of the aggregate U.S. wage inflation process. In spite of the accumulated evidence and conclusions of previous researchers, we nevertheless believe that there are several reasons why a return to this issue is worthwhile.…”

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Structural Change in U.S. Wage Determination

Rich

Rissmiller²

2001

SSRN Journal

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--This paper provides an empirical investigation into the determinants and stability of the aggregate wage inflation process in the United States over the 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 importantly, 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. Gomme (1998) also provides an investigation into the "New Economy" paradigm and its 1 implications for labor market behavior.The U.S. economy has performed remarkably well over the last decade. The current expansion, which started in April 1991, is the longest in the post-war period. In addition to its surprising longevity, this boom has been characterized by the unusual coincidence of declining unemployment and declining price inflation. While there is a consensus that the combination of sustained growth, low unemployment and falling inflation is an impressive economic accomplishment, there has been considerable debate over the factor(s) responsible for the confluence of these favorable occurrences.Some commentators claim that the recent coexistence of low unemployment and low price inflation --the so-called "inflation puzzle" --is a consequence of changes in the labor market.Gordon (1997) constructs time-varying estimates of the non-accelerating inflation rate of unemployment (NAIRU) and reports a marked and steady decline in its value during the 1990s.Katz and Krueger (1999) cite evidence of restraint in wage growth since 1988 and argue that this development is primarily due to demographic shifts and the rise of labor market intermediaries.Akerlof, Dickens and Perry (2000) appeal to the concept of near-rational behavior and the idea that agents/firms may entirely ignore inflation or only partially incorporate inflationary expectations into wage (and price) setting decisions in a low inflation environment. While displaying some differences, these studies link recent trends in employment and price inflation to structural change in the labor market and instability in the wage inflation process. 1The changing nature of U.S. wage determination has been the focus of previous research.For example, studies have analyzed changes in the relative wage structure [Bound and Johnson (1992), Murphy and Welch (1992)], increased income inequality [DiNardo, Fortin, and Lemieux 2 (1996)], changing wage gaps between demographic groups [Blau and Kahn (1992)] and changes in union wage determination [Mitchell (1994)]. Moreover, interest in the stability of aggregate wage determination did...

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Un‐COLA: Why Have Cost‐of‐Living Clauses Disappeared from Union Contracts and Will They Return?

Ragan¹,

Bratsberg²

2000

Southern Economic Journal

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For more than 20 years, unions have been trading cost‐of‐living adjustment clauses (COLAs) for other forms of compensation. Various explanations have been offered for the erosion of COLA coverage—including reduced inflationary uncertainty, lower union power, and structural shifts in the economy—but the relative importance of these and competing hypotheses remains untested. We investigate the reasons for the decline in COLA coverage using a pooled cross‐sectional, time‐series model that accounts for industry fixed effects and recognizes the multiyear nature of most union contracts. After assessing the relative importance of alternative hypotheses, we conclude with a discussion of the potential for a rebound in COLA rates.

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Shifting Norms in Wage Determination

Cited by 57 publications

References 0 publications

Offshoring and Unemployment

Offshoring and Unemployment

Structural Change in U.S. Wage Determination

Un‐COLA: Why Have Cost‐of‐Living Clauses Disappeared from Union Contracts and Will They Return?

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