Falling Wage Shares in Europe and the United States: How Important is Aggregation Bias?

This paper sheds light on the importance of aggregation bias in the analysis of wage shares developments over time and across countries. We focus on five European countries and the United States and show that the trend decline in the aggregate wage share observed in these countries over much of the...

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Bibliographic Details
Published inEmpirica Vol. 28; no. 4; pp. 375 - 401
Main Authors Scarpetta, Stefano, Serres, Alain, Maisonneuve, Christine
Format Journal Article
LanguageEnglish
Published New York Springer 01.01.2001
Springer Nature B.V
SeriesEmpirica
Subjects
aggregation bias
Bias
Cross-national analysis
Economic and Monetary Union
Economic theory
Economics
Elasticity of substitution
Europe
Labor market
Monetary policy
Productivity
Profitability
Studies
U.S.A
Unemployment
wage equations
Wage negotiations
wage shares
Wages & salaries
Europe
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Summary:This paper sheds light on the importance of aggregation bias in the analysis of wage shares developments over time and across countries. We focus on five European countries and the United States and show that the trend decline in the aggregate wage share observed in these countries over much of the 1980s and 1990s partly reflects changes in the sectoral composition of the economy. The application of a fixed-weight aggregation method changes the profile of the observed wage share in a significant way: in particular there is no longer sign of an overshooting of the wage share levels of the early-1970s. Error-correction wage equations based on the adjusted wage shares generally have a better regression fit and show long-run elasticities of real wages to unemployment that vary less across countries and are substantially lower than those obtained with observed shares. [PUBLICATION ABSTRACT]
Bibliography:ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
content type line 23
ISSN:0340-8744
1573-6911
DOI:10.1023/a:1013922621303