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Business and Economics > Production and Operations Management

You are looking at 1 - 10 of 16 items for :

  • Type: Journal Issue x
  • Wage Level and Structure; Wage Differentials x
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Cover IMF Working Papers
Macroeconomic Uncertainty and Capital-Skill Complementarity
Anna Belianska
I examine the impact of macroeconomic uncertainty on labor market outcomes for skilled and unskilled workers and propose a new channel to improve our understanding of the underlying propagation mechanisms. I find that uncertainty shocks are recessionary with the unskilled experiencing a steeper fall in employment. To rationalize these findings, I build a New Keynesian DSGE model with skill heterogeneity and wage rigidities, which, coupled with precautionary labor supply, significantly amplify contractionary effects of uncertainty on the real economy.
Keywords:
Stochastic volatility; Capital-skill complementarity; Relative wages; Skill premium.; uncertainty shock; SVAR impulse response; SVAR methodology; A. solution method; A. Detrending method; Wages; Skilled labor; Labor supply; Employment; Europe
Cover IMF Working Papers
Capital Account Liberalization and Wage Inequality: Evidence from Firm Level Data
Kodjovi M. Eklou
and
Shakeba Foster
Firms play an important role in shaping income inequality at the aggregated country level, given that wages represent a significant proportion of household income. We investigate the distributional consequences of capital account liberalization, relying on firm level data to explore the implications for betweenfirms earning inequality in ASEAN5 countries over the period 1995-2019. We find that between-firms wage dispersion alone, accounts for a nontrivial proportion of the variation in the market Gini. Our empirical findings show that capital account liberalization increases between-firms wage inequality, as wages grow faster at initially high-paying firms and slow-down at firms at the lower portion of the wage distribution. These results are robust to a battery of robustness checks. Further, the directions and categories of capital account liberalization matter as results are pronounced for inflow liberalization and equity capital flows. We also show that capital account liberalization induces an increase in Profit-to-Wage ratios. Furthermore, the impact depends on country characteristics (wage setting institutions, the level of financial development and the size of the informal sector) as well as industry characteristics (export orientation and external finance dependence).
Keywords:
Wage Inequality; Firm heterogeneity; Capital Account Liberalization; wage dispersion; inflow liberalization; Shakeba foster; baseline result; Income inequality; Wages; Total factor productivity; Wage adjustments
Cover IMF Working Papers
How Costly Will Reining in Inflation Be? It Depends on How Rational We Are
Mr. Jorge A Alvarez
and
Allan Dizioli
We document that past highly inflationary episodes are often characterized by a steeper inflationslack relationship. We show that model-generated data from a standard small Dynamic Stochastic General Equilibrium (DSGE) model can replicate this empirical finding when estimated with different expectation formation processes. When inflation becomes de-anchored and expectations drift, we can observe high inflation even with a mildly positive output gap in response to cost-push shocks. The results imply that we should not use an unconditioned (not controlling for expectations change) Phillips curve estimated in normal times to predict the cost of reining in inflation. Our optimal policy exercises prescribe early monetary policy tightening and then easing in the context of positive output gaps and inflation far above the central bank target.
Keywords:
DSGE; inflation dynamics; optimal monetary policy; forecasting and simulation; bayesian estimation; inflation-slack curve; expectations drift; shock decomposition; inflation episode; Inflation; Output gap; Real wages; Wage gap; Wages; Global
Cover IMF Working Papers
How Do Adaptive Learning Expectations Rationalize Stronger Monetary Policy Response in Brazil?
Allan Dizioli
and
Hou Wang
This paper estimates a standard Dynamic Stochastic General Equilibrium (DSGE) model that includes a wage and price Phillip's curves with different expectation formation processes for Brazil and the USA. Other than the standard rational expectation process, we also use a limited rationality process, the adaptive learning model. In this context, we show that the separate inclusion of a labor market in the model helps to anchor inflation even in a situation of adaptive expectations, a positive output gap and inflation above target. The estimation results show that the adaptive learning model does a better job in fitting the data in both Brazil and the USA. In addition, the estimation shows that expectations are more backward-looking and started to drift away sooner in 2021 in Brazil than in the USA. We then conduct optimal policy exercises that prescribe early monetary policy tightening in the context of positive output gaps and inflation far above the central bank target.
Keywords:
DSGE; Inflation dynamics; optimal monetary policy; Forecasting and Simulation; Bayesian estimation.; learning expectation; inflation expectation; wages expectation; Inflation; Output gap; Real wages; Wage gap; Central bank policy rate; Global
Cover IMF Working Papers
The Negative Mean Output Gap
Mr. Shekhar Aiyar
and
Simon Voigts
We argue that in an economy with downward nominal wage rigidity, the output gap is negative on average. Because it is more difficult to cut wages than to increase them, firms reduce employment more during downturns than they increase employment during expansions. This is demonstrated in a simple New Keynesian model with asymmetric wage adjustment costs. Using the model's output gap as a benchmark, we further show that common output gap estimation methods exhibit a systematic bias because they assume a zero mean. The bias is especially large in deep recessions when potential output tends to be most severely underestimated.
Keywords:
WP; mean output gap; standard deviation; time series; Output gap estimation; business cycles; fiscal policy; monetary policy; output gap estimate; adjustment cost; nominal wage rigidity; output gap concept; output gap filter; output gap definition; Output gap; Potential output; Wage adjustments; Wage rigidity; Sticky prices; Global
Cover IMF Staff Country Reports
Switzerland: Selected Issues
International Monetary Fund. European Dept.
This Selected Issues paper on Switzerland models the evolving behavior of the Swiss franc relative to the world’s major reserve currencies and considers possible reasons for the shifts. Economic fundamentals, including country-partners and currency of denomination of Swiss trade and finance, are likely to affect which currencies the franc co-moves with, although these factors tend to change only slowly. The behavior of the Swiss franc may have also been affected by the global financial crisis and its aftermath, as well as the shift in recent years from synchronized to divergent monetary policies by the major central banks. Identifying reserve currency blocks and the de facto behavior of currencies is an ongoing pursuit. The two dimensions of exchange regimes—the anchor currency (basket) and the degree of exchange rate flexibility—should be identified simultaneously. The implied regimes align well with Switzerland’s de facto exchange rate arrangements and monetary policy frameworks. The approach used in this paper identifies how the franc co-moves with the major reserve currencies but is agnostic about the driving forces behind these moves.
Keywords:
ISCR; CR; wage; franc; currency; SNB; monetary policy; brake rule; wage gap; gap vis-à-vis; liquidity mismatch; long-run wage-productivity relationship; SNB's FX purchase; reserve portfolio; wage Phillips curve; Currencies; Wage gap; Wages; Labor productivity; Real wages; Global; Europe; Eastern Europe
Cover IMF Working Papers
Competitiveness and Wage Bargaining Reform in Italy
Mr. Alvar Kangur
The growth of Italian exports has lagged that of euro area peers. Against the backdrop of unit labor costs that have risen faster than those in euro area peers, this paper examines whether there is a competitiveness challenge in Italy and evaluates the framework of wage bargaining. Wages are set at the sectoral level and extended nationally. However, they do not respond well to firm-specific productivity, regional disparities, or skill mismatches. Nominally rigid wages have also implied adjustment through lower profits and employment. Wage developments explain about 45 percent of the manufacturing unit labor cost gap with Germany. In a search-and-match DSGE model of the Italian labor market, this paper finds substantial gains from moving from sectoral- to firm-level wage setting of at least 3.5 percentage points lower unemployment (or higher employment) rate and a notable improvement in Italy’s competitiveness over the medium term.
Keywords:
WP; labor market; productivity differential; export price; wage bargaining; zombie firm; Italy; competitiveness; exchange rate; labor costs; exports; labor market reforms; search and matching; DSGE models; wage-productivity differential; wage dispersion; wage distribution; wage externality; real value; wage markup; negotiated wage limit; institutions in Italy; market share; frontier firm TFP level; sectoral wage agreement; wage agreement; Wages; Productivity; Labor markets; Competition; Global; Europe
Cover IMF Working Papers
More Slack than Meets the Eye? Recent Wage Dynamics in Advanced Economies
Mr. Gee Hee Hong
,
Zsoka Koczan
,
Weicheng Lian
, and
Mr. Malhar S Nabar
Nominal wage growth in most advanced economies remains markedly lower than it was before the Great Recession of 2008–09. This paper finds that the bulk of the wage slowdown is accounted for by labor market slack, inflation expectations, and trend productivity growth. In particular, there appears to be greater slack than meets the eye. Involuntary part-time employment appears to have weakened wage growth even in economies where headline unemployment rates are now at, or below, their averages in the years leading up to the recession.
Keywords:
WP; wage growth; part-time employment; output gap; financial crisis; productivity growth; wage dynamics; unemployment; involuntary part-time employment; employment share; temporary contract; Phillips curve specification; aggregate output; Employment; Wages; Unemployment rate; Labor markets; Productivity; Global; Baltics
Cover IMF Working Papers
Labor Market Adjustments to Shocks in Australia
Mr. Adil Mohommad
Labor markets in Australia have adjusted smoothly to significant declines in commodity prices with little increase in unemployment. This paper examines several aspects of the adjustment, focusing on (i) evidence of increased labor market frictions following the commodity price decline; (ii) flexibility in labor input adjustment in response to demand shocks; (iii) changes in labor productivity in the wake of resource reallocation with the decline in mining investment, (iv) and the role of migration in adjusting to the commodity price and mining investment cycle. We find little evidence of increased labor market frictions with the decline in commodity prices. The relatively smooth transition has been assisted by increased flexibility in adjustment of worker hours over time. Labor productivity growth has sustained its historical average through the transition, despite some temporary drag as the economy rebalances. Finally, migration has played a key role in labor market adjustment through the commodity cycle.
Keywords:
WP; labor market; IMF staff calculation; labor market slack; equilibrium unemployment value; IMF staff estimate; labor market dynamics; economic flexibility; labor productivity growth; growth in services sectors; labour productivity gap; Employment; Labor markets; Unemployment; Labor productivity; Global
Cover IMF Staff Country Reports
Republic of Belarus: Selected Issues
International Monetary Fund. European Dept.
Republic of Belarus: Selected Issues
Keywords:
ISCR; CR; wage; wage target; wage growth; deficit; exchange rate