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A Multisector Perspective on Wage Stagnation

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  • Ngai, L. Rachel

    (London School of Economics)

  • Sevinc, Orhun

    (Central Bank 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.

Suggested Citation

  • Ngai, L. Rachel & Sevinc, Orhun, 2023. "A Multisector Perspective on Wage Stagnation," IZA Discussion Papers 16356, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp16356
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    Cited by:

    1. Diego Comin & Ana Danieli & Martí Mestieri, 2020. "Income-Driven Labor-Market Polarization," Working Paper Series WP-2020-22, Federal Reserve Bank of Chicago.
    2. Duc Nguyen, 2022. "Heterogeneous Paths of Structural Transformation," Working Papers tecipa-742, University of Toronto, Department of Economics.

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    More about this item

    Keywords

    multisector model; wage-productivity divergence; low-skill wage stagnation; 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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