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Worker Flows and Wage Dynamics: Estimating Wage Growth without Composition Effects

Author

Listed:
  • Carrasco, Raquel

    (Universidad Carlos III de Madrid)

  • Garcia Perez, J. Ignacio

    (Universidad Pablo de Olavide)

  • Jimeno, Juan F.

    (Bank of Spain)

Abstract

Wage dynamics is closely intertwined with job flows. However, composition effects associated to the different sizes and characteristics of workers entering/ exiting into/from employment that may blur the "true" underlying wage growth, are not typically accounted for. In this paper, we take these composition effects into consideration and compute wage growth in Spain during the 2006-2018 period after netting out the consequences of employment dynamics. Our results show that the "true" underlying wage growth in the Spanish economy during recessions (expansions) was, on average, significantly lower (higher) that the observed with raw data. This may help to explain some macro puzzles, such as the "vanishing" Phillips curve.

Suggested Citation

  • Carrasco, Raquel & Garcia Perez, J. Ignacio & Jimeno, Juan F., 2020. "Worker Flows and Wage Dynamics: Estimating Wage Growth without Composition Effects," IZA Discussion Papers 13942, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp13942
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    More about this item

    Keywords

    selection bias; composition effects; wage growth;
    All these keywords.

    JEL classification:

    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure

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