The Intensive and Extensive Margins of Real Wage Adjustment

Abstract

Using 35 years of data from the Current Population Survey we decompose fluctuations in real median weekly earnings growth into the part driven by movements in the intensive margin-wage growth of individuals continuously full-time employed-and movements in the extensive margin-wage differences of those moving into and out of full-time employment. The relative importance of these two margins varies significantly over the business cycle. When labor markets are tight, continuously full-time employed workers drive wage growth. During labor market downturns, the procyclicality of the intensive margin is largely offset by net exits out of full-time employment among workers with lower earnings. This leads aggregate real wages to be largely acyclical. Most of the extensive margin effect works through the part-time employment margin. Notably, the unemployment margin accounts for little of the variation or cyclicality of median weekly earnings growth.JEL classification codes: E24, J3, J6.

Contributions of Employment Change to Annual Wage Growth in New Zealand

“…Similar, Daly and Hobijn (, ) derive an approach to estimate the effects on average and median wage changes of compositional changes associated with worker entry and exit and job‐to‐job changes. They find that continuously employed (full‐time) workers dominate aggregate wage growth in tight labour markets, but during recessions this intensive margin effect is offset by extensive margin effects associated with exit from full‐time to part‐time employment.…”

“…In this article we analyse annual wage growth using data from Statistics New Zealand's HLFS‐Income Supplement (HLFS‐IS) from 1997 to 2015. We focus on understanding trend and cyclical patterns of wage changes over the period, as well as the contributions of continuing workers’ average wage growth versus compositional effects associated with flows into and out of employment (Daly and Hobijn , ).…”

Cyclical and market determinants of involuntary part-time employment

“…The wage effects of such changes are of particular interest and perhaps could be identified by focusing on industries with high incidence of part-time work, such as the retail and hospitality sectors. Accounting for the frictions that divide part-time workers into involuntary and voluntary groups is an especially interesting challenge for estimation of changes in the part-time wage penalty and may have important implication for movements in aggregate wages as well (as in Daly and Hobijn 2016). Share of row group in total employment (part-time and full-time).…”

Reallocation and the Role of Firm Composition Effects on Aggregate Wage Dynamics

“…We use the employer-employee data from INPS to replicate and extend previous work on the rising importance of worker composition effects in explaining aggregate wage dynamics over time and particularly during and after the recent crisis (Daly and Hobijn, 2016;Verdugo, 2016).…”

“…Common explanations include wage rigidities resulting from various market frictions -see Adamopoulou et al (2016); Verdugo (2016); Devicienti, Maida and Sestito (2007) and Dickens et al (2007). However, the existing literature has also provided evidence that low-paid workers were more severely affected during the recent downturn and therefore composition effects might have played a particularly important role in shaping aggregate wage dynamics -see, for instance, Daly and Hobijn (2016) for the US and Verdugo (2016) for the Eurozone countries.…”