Wage Adjustment and Productivity Shocks
Sveriges Riksbank - Research Department; Sveriges Riksbank
Oskar Nordstrom Skans
IFAU - Office of Labour Market Policy Evaluation; Institute for the Study of Labor (IZA)
May 1, 2011
Riksbank Research Paper Series No. 84
Sveriges Riksbank Working Paper Series No. 253
We study how workers’ wages respond to TFP-driven innovations in firms’ labor productivity. Using unique data with highly reliable firm-level output prices and quantities in the manufacturing sector in Sweden, we are able to derive measures of physical (as opposed to revenue) TFP to instrument labor productivity in the wage equations. We find that the reaction of wages to sectoral labor productivity is almost three times larger than the response to pure idiosyncratic (firm-level) shocks, a result which crucially hinges on the use of physical TFP as an instrument. These results are all robust to a number of empirical specifications, including models accounting for selection on both the demand and supply side through worker-firm (match) fixed effects. Further results suggest that technological progress at the firm level has negligible effects on the firm-level composition of employees.
Number of Pages in PDF File: 58working papers series
Date posted: February 21, 2012
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