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A Multisector Perspective on Wage Stagnation

Author

Listed:
  • Rachel Ngai

    (London School of Economics)

  • Orhun Sevinc

    (Central Bank of the Republic of Turkey)

Abstract

Low-skill workers are concentrated in sectors experiencing fast productivity growth, yet their real wages have stagnated and lagged behind aggregate productivity. We provide evidence demonstrating the importance of a multisector perspective. Central to our mechanism is the decline in the relative price of the low-skill intensive sector driven by its faster productivity growth. This dampens wage gains for low-skill workers by lowering the price of their output relative to their consumption basket, which is further reinforced by shifting them into the sector where less weight is placed on their labor. We calibrate the two-sector model to the 1980–2010 U.S. economy and find this mechanism to be quantitatively important. Our counterfactual analysis reveals that low-skill real wage growth would have nearly doubled if the observed aggregate productivity growth had been evenly distributed across sectors. (Copyright: Elsevier)

Suggested Citation

  • Rachel Ngai & Orhun Sevinc, 2025. "A Multisector Perspective on Wage Stagnation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 56, April.
    • Handle: RePEc:red:issued:23-176
    DOI: 10.1016/j.red.2024.101269
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    More about this item

    Keywords

    Low-skill wage stagnation; Wage-productivity divergence; Multisector model; Relative prices; Uneven productivity growth;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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