Real wage rigidity in regional labor markets in the U.K., the U.S., and West Germany

"This paper examines the extent to which regional differences in wage rigidity exist and can help explain interregional differences in unemployment trends. Phillips-curve models of manufacturing wage inflation are estimated for the 10 largest states in the U.S., the 10 economic regions in the United Kingdom, and the 11 Lande in the Federal Republic of Germany over the 1971 to 1985 period. There is evidence of significant differences in the responsiveness of wage inflation to unemployment and the rate of change in consumer prices across the regions within each country and across the three nations."     

A Methodology for Estimating Returns to Skills for Canadian Provinces and U.S. States

Differences in both regional skill prices and skill mix can explain interregional variations in wage distributions. We control for interregional differences in skill mix that permit us to compute key parameters of regional wage distributions including regional returns to skills. In addition to setting forth the methods in detail, we also present estimates for 48 U.S. states and 10 Canadian provinces. For both males and females, we find that regional mean wages (with controls for skills mix) in the U.S. and Canada are similar, but that the returns to skills are systematically higher in the U.S.     

REGIONAL HETEROGENEITY IN WAGE DISTRIBUTIONS: EVIDENCE FROM SPAIN*

ABSTRACT Regional differences in real wages have been shown to be both large and persistent in the United States and the U.K., as well as in the economies of other countries. Empirical evidence suggests that wage differentials adjusted for the cost of living cannot only be explained by the unequal spatial distribution of characteristics determining earnings. Rather, average wage gap decomposition reveals the important contribution made by regional heterogeneity in the price assigned to these characteristics. This paper proposes a method for assessing regional disparities in the entire wage distribution and for decomposing the effect of differences across regions in the endowments and prices of the characteristics. The hypothesis forwarded is that the results from previous studies obtained by comparing average regional wages may be partial and nonrobust. Empirical evidence from a matched employer–employee dataset for Spain confirms marked differences in wage distributions between regions, which do not result from worker and firm characteristics but from the increasing role of regional differences in the return to human capital.     

TOTAL FACTOR PRODUCTIVITY GROWTH IN MANUFACTURING FURTHER EVIDENCE FROM THE STATES*

In this paper, we first develop a measure of total factor productivity (TFP) growth and summarize a source-of-growth analysis for the manufacturing sector of 48 states. As have others, we find little association between TFP growth differentials and output growth differentials for census regions. At the staterather than the regional level, however, we find a positive association between TFP growth and output growth. We use cross-sectional data to estimate the determinants of the variation in TFP growth. Two results emerge that are important for regional policy and for understanding national productivity trends. First, state investments in education and in transportation infrastructure may affect TFP growth. Second, energy price increases in the early 1970s had no differential effects on productivity growth across states. We also explore the determinants of manufacturing output growth and find that TFP growth, demand growth, wage growth, wage levels, and state corporate income tax rates are significant.     

Equilibrium and Economic Growth: Spatial Econometric Models and Simulations

Neoclassical theory assumes diminishing returns to capital and spatially constant exogenously-determined technological progress, although it is questionable whether these are realistic assumptions for modeling manufacturing productivity growth variations across European Union (E.U.) regions. In contrast, the model developed in this paper assumes increasing returns and spatially varying technical progress, and is linked to endogenous growth theory and particularly to 'new economic geography' theory. Simulations, involving 178 E.U.regions, show that productivity levels and growth rates are higher in all E.U. regions when the financially assisted (Objective 1) regions have faster output growth. This also reduces inequalities in levels of technology. Allowing the core regions to grow faster has a similar effect of raising productivity growth rates across the E.U., although inequality increases. Thus, the simulations are seen as an attempt to develop a type of 'computable geographical equilibrium' model which, as suggested by Fujita, Krugman, and Venables (1999), is the way theoretical economic geography needs to evolve in order to become a predictive discipline.     

MIGRATION,SKILL FORMATION,AND THE WAGE STRUCTURE*

ABSTRACT We analyze the impacts of migration and of labor market integration on the distribution of skills and the wage structure in both the short and the long run. To do so, we develop a framework where workers have heterogeneous skills and where in‐migration expands the range of available skills in the economy. In the short run, this expansion leads to productivity gains, which may more than offset the negative endowment effects of a larger labor supply so that all workers may be better off. In the long run, in‐migration impacts wages further by altering the workers' incentives to acquire skills, thereby affecting the wage structure indirectly by changing the economy's skill composition. Since the short and the long‐run effects of in‐migration on wages may differ, compositional changes may be an important element to take into consideration. A numerical illustration calibrated on U.S. data suggests that the immigration of skilled workers negatively affects the incentives for domestic skill formation, thereby suggesting that endowment effects dominate externalities. We finally extend the model to cope with the simultaneous impacts that migration and skill formation have on the host and the source region, and we show that more migration increases wage disparities and the skill gap across regions.     

LOCAL INPUT AND PRODUCTIVITY GROWTH IN U.S. MANUFACTURING: 1972–2002*

ABSTRACT This research analyzes manufacturing growth and decline across metropolitan and nonmetropolitan regions during the 1972–2002 period. We decompose real value added growth across local labor market areas in the lower 48 U.S. states into contributions from labor, capital, and total factor productivity. We then estimate a model describing the long‐run growth of labor, capital, and productivity and find that increased productivity increases the growth of labor and capital, as well as a positive correlation between labor and capital stock growth. We also find evidence that human capital investment and agglomeration economies encourage productivity growth, while unionization discourages it.     

AGGLOMERATION AND REGIONAL COSTS OF LIVING*

ABSTRACT Standard models of the new economic geography predict that costs of living are lower in the core than in the periphery. But in reality they tend to be higher in agglomeration areas, mainly because of regional differences in housing costs. In this paper, we add a home goods sector to the seminal NEG model of Krugman (1991) . We show that a core–periphery structure can endogenously emerge in which the core is the more expensive area. This result has an important normative implication. Since higher costs of living imply falling real wages if there is no nominal wage premium, it is not desirable for everybody to live in the core region.     

INTERREGIONAL WAGE DIFFERENTIALS: AN EQUILIBRIUM PERSPECTIVE*

ABSTRACT This paper empirically analyzes two competing explanations for observed interregional wage differentials among full-time U.S. workers: (1) differences in the average levels of market valued labor characteristics, and (2) differences in rates of return to the characteristics. Hedonic wage equations are estimated for broad U.S. regions using detailed measures of human capital, work environment, and personal attributes collected by a national random sample mail survey. Statistical tests reveal little tendency for interregional structural shifts in the wage equations estimated, an outcome which rests on the inclusion of important, but seldom measured, wage determining variables.     

TESTING CRITERIA FOR DETERMINING LEADING REGIONS IN WAGE TRANSMISSION MODELS*

In this study, we use a vector autoregressive modeling framework to test the zero restrictions implied by alternative criteria for ranking regions into hierarchies in the wage-transmission debate. This approach allows formal statistical tests to be carried out for competing criteria suggested for determining leading and following regions. The ability of the modeling technique proposed here to produce a set of nested hypothesis tests of alternative criteria is in stark contrast to the historical literature in this debate. Researchers have traditionally proposed a criterion for ranking regions into a hierarchy, and then argued for the merits of their particular criterion by demonstrating that an econometric model of wage formation produces statistically significant coefficient estimates when their criterion is used to rank the regions of their data sample. We apply the methods proposed here to a sample of eight midwestern cities in the U.S. in order to test the following criteria: Beaumont (1983), Hart and MacKay (1977), Reed and Hutchinson (1976), unemployment rate, and earnings level. The test is for consistency with the Granger-causal structure of wage interactions inherent in the wage diffusion idea. We argue that the technique set forth here is a real step forward that should allow a resolution of this particular debate. The proposed procedures might also be applied to empirically test other regional science hypotheses concerning for example, intercity and interindustry causal structures.     

SKILLS,THE GENDER WAGE GAP,AND CITIES

This paper links gender wage gaps with the urban wage premium. First, the study documents gender wage gaps are narrower in larger U.S. metropolitan areas in 2000 and 2010. Skill agglomerations are then considered to explain this. Specifically, if men and women employ heterogeneous skills, and these skills have differential productivities across city sizes, agglomerative forces may differentially reward men and women. Occupational data show that women are concentrated in jobs relatively more intensive in interactive and cognitive skills, while men are comparatively in physical skill‐intensive jobs. Decomposing the gender wage gap shows that explanatory factors (education, skills, and location) predict women would outearn men. Instead, agglomerative skill returns account for majority of the gap. These estimates suggest that even as women employ skills rewarded in agglomeration economies, they benefit less from agglomerations than men, resulting in the observed gap.     

Regional labor markets and the household migration decision

"The current work extends the modeling of the household migration decision to take into account location-specific influences and relates these to regional wage differentials. This allows for more complete analysis of real wage gains or losses associated with migration and inferences regarding the nature of equilibrium or disequilibrium wage differentials between regions." Data are from the Michigan Panel Study of Income Dynamics for the period 1976-1978. "The results indicate systematic and often substantial influences of household location on the nominal wage and on both job and residence mobility. Based on these findings, comparisons of wage growth patterns are made for those changing jobs and region of residence status. Although compared to other households the wage growth of these migrants is on average lower before migration and higher after migration, the analysis provides no support for arguments that nominal regional wage differentials reflect systematic ordering of real wage differentials. This finding suggests that real wage gains are closely tied to the interregional migration decision but are not related to regional nominal wage differentials in a simple fashion."     

Wage Effects of Unemployment Duration and Frequency

This paper analyzes the wage effects of unemployment duration and frequency for different regional labor market situations in The Netherlands using a simultaneous equations approach. The main finding is that unemployment duration has a significant negative effect and the frequency of unemployment a significant positive effect on wages in the core regions with relatively low unemployment rates. In the periphery with relatively high unemployment rates no significant effects of unemployment duration and frequency are found. It is argued that in the core regions unemployment duration is primarily viewed as a personal indicator of low productivity whereas in the periphery it is attributed to the situation in the regional labor market.     

Regional Fertility Differentials and the Effect of Migration: An Analysis of U.S. State-level Data

This paper explores, theoretically and empirically, the influence of interregional migration on regional fertility differentials. Specifically, it tests the hypothesis that regions that are closely linked through migration have, all else held constant, a lower differential in fertility than regions that are relatively isolated from one another. A model linking the fertility differential between two states to migration as well as a number of socioeconomic variables is articulated. The model is tested by means of a randomization procedure using U.S. state-level data for 1980. Results support the hypothesis that an increasing volume of interregional migration tends to lower regional fertility differentials.     

A NOTE ON REAL WAGE RIGIDITY AND STATE UNEMPLOYMENT RATES*

ABSTRACT This paper extends the research of Hyclak and Johnes (1989) in analyzing the relationship between the rigidity in real wages and state unemployment rates. It presents evidence contrary to the empirical findings of Hyclak and Johnes in that measures of real wage rigidity are not robust over time in explaining changes in state unemployment rates. Moreover, an alternative proxy accounting for divergent growth patterns across states does not significantly affect changes in state unemployment rates.     

CONVERGENCE AND THE U.S. STATES: A TIME-SERIES ANALYSIS*

ABSTRACT. After decades of apparent convergence, state and regional per capita earnings diverged between 1978 and 1988. A central tenet of the convergence hypothesis is that shocks to relative state and regional earnings, such as those of the 1978 to 1988 period, are transitory. We find evidence for convergence for the U.S. states and regions during the 1929 to 1990 period after allowing for a break in the rate at which the various states and regions were converging in 1946. An important finding of this research is that the US. states and regions achieved per capita earnings convergence by 1946.     

A NOTE ON THE DIFFERENTIAL REGIONAL EFFECTS OF INCOME INEQUALITY: EMPIRICAL EVIDENCE USING U.S. COUNTY‐LEVEL DATA

This note examines the correlation between income inequality and economic growth using a panel of income distribution data for 3,109 counties of the U.S. Using the System Generalized Method of Moments (GMM) approach, we find that for the entire sample of 3,109 counties, an increase in a county's level of inequality has a significant negative relationship with future economic growth. In reality, however, the magnitude, sign, and significance of this relationship is not necessarily uniform across all regions of the U.S., motivating the need to examine regional differentials in the relationship between inequality and growth. Consequently, we split our dataset into metropolitan and nonmetropolitan counties, into the eight Bureau of Economic Analysis regions, and into regions of different political affiliation and economic‐dependence typology. Our results show considerable heterogeneity in the relationship between inequality and growth across these regions.     

Revisiting interregional wage differentials: New evidence from Spain with matched employer-employee data

This article examines wage differences across Spain's NUTS-2 regions along the entire wage distribution based on matched employer-employee microdata from 2006 to 2014. Unlike previous related studies, we properly control for differences in regional purchasing power parities, which are very large in practice. Although part of the raw regional wage differences observed is explained by differences between regions in productive structures, and, to a much lesser extent, in labor forces, noteworthy, very similar throughout the wage distribution regional differences net of composition effects arise even after controlling for a broad set of individual and firm characteristics.     

The Welfare Economics of Rural-To-Urban Migration: The Harris-Todaro Model Revisited

In this paper we extend the Harris-Todaro model of rural-to-urban migration to include urban agglomeration effects, some urban real wage flexibility, and a government budget constraint. Without employment subsidies laissez-faire migration is excessive unless real wage flexibility and agglomeration effects are high. Laissez-faire migration is too low compared with the first-best outcome supported by a subsidy, if its financing involves no costs. Simulations suggest that such a program would imply a substantial increase in taxation. If, as seems likely, an increase of this magnitude involves economic costs then the optimal outcome falls well short of first-best.     

REGIONAL VARIATIONS IN LABOR DEMAND ELASTICITY: EVIDENCE FROM U.S. COUNTIES

We use a large panel dataset covering the period 1988–2010 to estimate county specific own‐wage elasticity of labor demand in the U.S. for four highly aggregated industries: construction, finance/insurance/real‐estate/service, manufacturing, and retail trade. Our estimation of a random parameter panel data model yields significant evidence of spatial variations in wage elasticity of labor demand. We relate the spatial variation in elasticity to differences in county characteristics like industry specialization, industry competition, levels of natural amenity and urbanization. Using a regression discontinuity approach we also find that probusiness states have higher labor demand elasticity.