The Role of Wage Formation in Empirical Macroeconometric Models

The specification of model equations for nominal wage setting has important implications for the properties of macroeconometric models and requires system thinking and multiple equation modeling. The main models classes are the Phillips curve model (PCM), the wage–price equilibrium correction model (WP-ECM), and the New Keynesian Phillips curve (NKPCM). The PCM was included in the macroeconometric models of the 1960s. The WP‑ECM arrived in the late 1980s. The NKPCM is central in dynamic stochastic general equilibrium models (DSGEs). The three model classes can be interpreted as different specifications of the system of stochastic difference equations that define the supply side of a medium-term macroeconometric model. This calls for an appraisal of the different wage models, in particular in relation to the concept of the non-accelerating inflation rate of unemployment (NAIRU, or natural rate of unemployment), and of the methods and research strategies used. The construction of macroeconomic model used to be based on the combination of theoretical and practical skills in economic modeling. Wage formation was viewed as being forged between the forces of markets and national institutions. In the age of DSGE models, macroeconomics has become more of a theoretical discipline. Nevertheless, producers of DSGE models make use of hybrid forms if an initial theoretical specification fails to meet a benchmark for acceptable data fit. A common ground therefore exists between the NKPC, WP‑ECM, and PCM, and it is feasible to compare the model types empirically.

Understanding the Size of the Government Spending Multiplier: It's in the Sign

This paper argues that an important, yet overlooked, determinant of the government spending multiplier is the direction of the fiscal intervention. Regardless of whether we identify government spending shocks from (i) a narrative approach, or (ii) a timing restriction, we find that the contractionary multiplier- the multiplier associated with a negative shock to government spending- is above 1 and largest in times of economic slack. In contrast, the expansionary multiplier- the multiplier associated with a positive shock- is substantially below 1 regardless of the state of the cycle. These results help understand seemingly conflicting results in the literature. A simple theoretical model with incomplete financial markets and downward nominal wage rigidities can rationalize our findings.

PENGARUH HARGA TANAMAN PANGAN DAN UPAH PETANI TERHADAP KONSUMSI [THE INFLUENCE OF FOOD CROPS PRICES AND FARMERS' WAGES ON CONSUMPTION]

<p>This study aims to determine the effect of crops prices and farmers' wage on consumption rate in Indonesia. Agriculture is one of the primary sectors when it comes to fulfilling society's needs and livelihood. Indonesia's developing economic rate today displays the development of our agricultural sector, which is related to farmers' consumption rate. However, farmers could only afford it if they've obtained adequate wage. Farmers' income are heavily influenced by the prices of crops. This study utilized Eviews as the primary data processing software, in addition to that data was obtained secondarily from Badan Pusat Statistik (Statistics Indonesia). Secondary data obtained was 72 data from 2011 - 2016, containing real and nominal wage of farmers, crops' prices, and consumption rate in Indonesia. This study adopts quantitative research method and hypothesis was tested with regression model on the panel data. Results showed that the selected RE model and farmers 'wages significantly affected consumption rate, crops' prices did not have significant effect on consumption and no strong correlation between crops' prices and farmers' wages was found.</p><p><strong>BAHASA INDONESIA ABSTRACT:</strong> Tujuan dari penelitian ini adalah untuk mengetahui pengaruh harga tanaman pangan dan upah petani terhadap konsumsi di Indonesia. Sektor pertanian masih menjadi salah satu sektor utama dalam memenuhi kebutuhan masyarakat maupun sebagai mata pencarian. Berkembangnya perekonomian di Indonesia memperlihatkan juga perkembangan sektor pertaniannya yang kemudian berkaitan dengan konsumsi petani, sedangkan petani mampu untuk mengkonsumsi jika ada upah yang memadai. Pendapatan atau upah petani salah satunya dipengaruhi oleh harga tanaman pangan. Penelitian ini menggunakan Eviews sebagai software pengolah data, data diperoleh dari data sekunder yaitu dari Badan Pusat Statistik. Data sekunder yang diambil sebanyak 72 data yang adalah data upah petani riil dan nominal, harga beberapa tanaman pangan dan data konsumsi di Indonesia, semua data diambil dari tahun 2011 sampai dengan 2016. Metode penelitian yang digunakan adalah kuantitatif dan pengujian yang dilakukan dengan software Eviews yaitu regresi data panel. Hasil dari penelitian ini adalah yang terpilih model RE dan upah petani berpengaruh secara signifikan terhadap konsumsi, harga tanaman pangan tidak berpengaruh secara signifikan terhadap konsumsi dan tidak ada korelasi yang kuat antara harga tanaman pangan dengan upah petani.</p>

Nominal Wage Adjustments during the Pandemic Recession

In this paper, we show that the pandemic recession has led to frequent cuts in nominal wages. Within three months in 2020, as many wage cuts had occurred as occurred throughout the Great Recession. Unlike employment declines, wage cuts were concentrated at the top of the wage distribution. However, these cuts have been relatively short lived, particularly among high earners. Finally, wage cuts have been concentrated in firms that have seen large employment declines. Wage cuts appear not to be a substitute for cutting employment, at least when the shock to labor demand is this large.

Labor Welfare in On-Demand Service Platforms

Problem definition: An on-demand service platform relies on independent workers (agents) who decide how much time, if any, to devote to the platform. Some labor advocates have argued that an expansion of the labor pool hurts agents—by reducing the wage and agent utilization (i.e., the fraction of time an agent is busy serving customers). Motivated by concern for agent welfare, regulators are considering measures that reduce the labor pool size or that impose a floor on the nominal wage or effective wage (i.e., the product of the nominal wage and agent utilization). Are agents indeed hurt by an expansion in the labor pool size? Which type of wage-floor regulation is preferable? Are consumers hurt by the imposition of a wage floor? Academic/practical relevance: Because independent agents work without the traditional protections intended to ensure the welfare of employees, the welfare of those agents is an important concern. Methodology: We employ an equilibrium model that accounts for the interaction among price, wage, labor supply, customer delay, and demand. Results: Average labor welfare increases and then decreases in the labor pool size; that is, agents are harmed by an expansion in the labor pool size if and only if the labor pool size is sufficiently large. The effective wage floor is superior to the nominal wage floor in terms of labor welfare maximization. More generally, the two types of wage floors have structurally different effects on labor welfare, with a floor on the nominal wage only beneficial to agents if it is sufficiently small. Contrary to the conventional view that consumers are hurt by an effective wage floor (because they face a higher price, due to upward pressure on the wage, and longer delay, due to upward pressure on agent utilization), consumers actually benefit. Managerial implications: Regulators, labor advocates, platform managers, and agents benefit from understanding the forces that create and destroy labor welfare.

Negative Real Balance Effects in the Presence of Involuntary Unemployment

We examine positive or negative real balance effect (or so-called Pigou effect) by falls in the nominal wage rate and the prices of the goods in situations where there is involuntary unemployment using a three-generations overlapping generations model with childhood period and pay-as-you go pension system for the older generation consumers. We will show that if the net savings of the younger generation consumers are larger than their debts due to consumption in their childhood period, there exists positive real balance effect and the employment increases by a fall in the nominal wage rate; on the other hand, if the net savings of the younger generation consumers are smaller than their debts, there exists negative real balance effect and the employment decreases by a fall in the nominal wage rate.

Aggregate Nominal Wage Adjustments: New Evidence from Administrative Payroll Data

Using administrative payroll data from the largest US payroll processing company, we measure the extent of nominal wage rigidity in the United States. The data allow us to define a worker’s per-period base contract wage separately from other forms of compensation such as overtime premiums and bonuses. We provide evidence that firms use base wages to cyclically adjust the marginal cost of their workers. Nominal base wage declines are much rarer than previously thought with only 2 percent of job-stayers receiving a nominal base wage cut during a given year. Approximately 35 percent of workers receive no base wage change year over year. We document strong evidence of both time and state dependence in nominal base wage adjustments. In addition, we provide evidence that the flexibility of new hire base wages is similar to that of existing workers. Collectively, our results can be used to discipline models of nominal wage rigidity. (JEL E24, E32, J31, J41)

Microeconomic Foundation for Phillips Curve with a Three-Period Overlapping Generations Model and Negative Real Balance Effect

We show a negative relation between the inflation rate and the unemployment rate, that is, the Phillips curve using a three-period overlapping generations (OLG) model with childhood period and pay-as-you-go pension for older generation under monopolistic competition with negative real balance effect. In a three-period OLG model, there may exist a negative real balance effect because consumers have debts and savings. A fall (or rise) in the nominal wage rate induces a fall (or rise) in the price, then by negative real balance effect, the unemployment rate rises (or falls), and we get a negative relation between the inflation rate and the unemployment rate. This conclusion is based on the premise of utility maximisation of consumers and profit maximisation of firms. Therefore, we present a microeconomic foundation for the Phillips curve. We also examine the effects of fiscal policy financed by seigniorage, which is represented by left-ward shift of the Phillips curve.