## INTRODUCTION (wp1850)

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### Key questions and focus
- Drivers: How well do aggregate macroeconomic factors such as labor market slack, inflation expectations, and trend labor productivity growth account for nominal wage dynamics observed across advanced economies since the Great Recession? How has the evolving mix of full-time versus involuntary part-time employment and open-ended versus temporary work contracts affected labor market slack and hence wage dynamics?
- Underlying changes: How have changes in firms’ incentives and constraints (for example, related to changing expectations about medium-term growth prospects, technology, and global production processes) affected nominal wage setting and part-time employment? What impact have shifts in bargaining power (arising, for example, from changes in employment regulations, unionization, and degree of import competition) had on wages and part-time employment?

### Main findings (aggregate)
- Macroeconomic factors—headline unemployment, underutilization in the form of involuntary part-time employment, inflation expectations, and trend productivity growth—can account for the bulk of cross-country variation in nominal wage growth in recent years.
- Common factors exerted increasing downward pressure on wage inflation after the global financial crisis and especially during 2014–16.
- For some euro area economies with large precrisis current account deficits, policy measures to slow wage growth and improve competitiveness following the global financial crisis and euro area sovereign debt crisis likely contributed to subdued wage growth.
- The presence of sizable common factors behind wage weakness may reflect:
  - growing influence of foreign labor market conditions through cross-border economic integration;
  - broad-based and synchronized demand weakness across many countries; and/or
  - heightened concern about job losses after the global financial crisis and the euro area sovereign debt crisis.

### Heterogeneity across country groups
- Economies with unemployment rates still appreciably above their averages before the Great Recession:
  - Conventional measures of labor market slack explain about half of the slowdown in nominal wage growth since 2007.
  - Involuntary part-time employment acts as a further significant drag on wages.
  - Productivity growth is relatively less important because these economies generally had lower productivity growth to begin with, and less of a slowdown.
- Economies with unemployment rates below their 2000–07 averages:
  - Slow productivity growth can account for most—about two-thirds—of the slowdown in nominal wage growth since 2007.
  - Even in these economies, involuntary part-time employment appears to weigh on wage growth, suggesting greater slack than headline unemployment indicates.

### Policy-relevant implications (summary)
- Accommodative policies can help lift demand and lower headline unemployment rates, but:
  - wage growth may remain subdued until involuntary part-time employment diminishes or trend productivity growth picks up;
  - inflation rates will likely remain low unless wage growth accelerates beyond productivity growth in a sustained manner.
- Assessing the true degree of slack beyond measured headline unemployment rates is important for judging the appropriate pace of exit from accommodative monetary policies.
- Addressing income security for workers in part-time jobs or temporary contracts could include:
  - tackling slack,
  - supporting retraining and reskilling,
  - addressing remaining labor market and structural rigidities, and
  - ensuring fairness of treatment across employees under various types of contracts.

*Source: INTRODUCTION, wp1850 (IMF Working Paper).*

### Representative numeric facts from introduction
- Period highlighted: 2014–16 (period of especially pronounced common downward pressure on wage inflation).

---

### 1. Unemployment Rate — involuntary part-time, temporary contracts, hours

### B. Involuntary Part-Time Employment, Temporary Contracts, Hours — key findings
- Involuntary part-time employment increased across virtually the entire sample in 2009 and remains above the 2007 level in more than three-quarters of countries. (Changes shown are 2016 values relative to the 2000–07 average.)
- Country examples (involuntary part-time employment shares):
  - United States: increased from 0.8 percent in 2007 to 1.3 percent in 2016.
  - United Kingdom: increased from 2.4 percent in 2007 to 3.9 percent in 2016.
  - France: increased from 5.3 percent in 2007 to 7.8 percent in 2016.
  - Germany: 2016 involuntary part-time employment share is 3.1 percent, above the 2.7 percent average for 2000–07.
- Relationship with unemployment: largest increases in involuntary part-time employment occurred in economies with unemployment rates above their 2000–07 averages; however, even economies with unemployment rates close to their 2000–07 averages exhibit higher involuntary part-time shares than before the crisis.
- Temporary contracts:
  - By 2016, in just over half the economies, the temporary contract share was higher than in 2007.
  - Temporary contracts are now more common than in 2000–07 for most advanced economies.
  - Japan: the share of temporary contract workers dropped by close to 6 percentage points compared with the 2000–07 average, but the broader category of “nonregular” workers increased as a share of overall employment during this period.
- Hours per worker:
  - In more than half of the economies, hours per worker are at least 2 percent below pre–Great Recession levels. (Panel measures show log-level differences relative to 2007 and average changes for 2009–16.)
  - Declines in hours per worker predate the crisis and the pattern continued after it.
  - Hours declined more in sectors with higher shares of low- and middle-skilled workers.
  - Declining hours tend to be associated with higher shares of involuntary part-time employment.
  - United Kingdom example (zero-hours contracts): share rose from 0.6 percent in 2010 to 3 percent in 2016.

### C. Compositional shifts versus within-sector developments — key statistics (2009–16)
- Part-time employment:
  - 26 countries experienced an increased share of part-time workers.
  - In 12 of the 26 countries, compositional change accounted for more than 25 percent of the increase.
  - In 4 countries, compositional change accounted for more than half the increase.
- Temporary contracts:
  - 19 of the 26 countries experienced an increase in the temporary contract share of employment.
  - Compositional change accounted for more than 25 percent of the increase in 7 of those countries.
  - In 3 countries, compositional change accounted for more than half the increase.
- Hours per worker:
  - Declines in hours per worker were seen in 25 countries.
  - Compositional change accounted for more than 25 percent of this decrease in 10 countries.
  - In 5 countries, compositional change accounted for more than half the decrease.
- Overall: compositional changes play greater roles for part-time employment shares, temporary contracts, and hours per worker than for growth in nominal wages.

### Measurement notes
- Wage variable: compensation per hour of workers excluding the self-employed (in some figures annual wage per worker excluding the self-employed).
- Involuntary part-time workers: working less than 30 hours a week because they could not find a full-time position; involuntary part-time employment share = involuntary part-time workers / total employment.
- Temporary workers: people with work contracts of limited duration; thresholds are country specific; temporary contract share = temporary workers / total employment.
- Hours per worker: reported as log-level differences relative to 2007 and average changes over 2009–16.

---

### 2. Temporary Contracts — framework, empirical estimates, latent slack

### Sectoral shifts and aggregate contributions (2009–16)
- Shifts in employment shares across sectors can explain:
  - about 22 percent of the increase in part-time employment,
  - 18 percent of the increase in temporary contracts,
  - 23 percent of the reduction in hours per worker.
- Declining employment shares in mining and manufacturing and faster increases in services contributed to rising part-time and temporary employment shares and falling hours per worker.

### Empirical framework (wage Phillips curve)
- Dependent variable: year-over-year growth rate of compensation per hour of workers excluding the self-employed.
- Controls include:
  - lagged year-over-year inflation (lagged inflation),
  - unemployment rate (u) and change in unemployment rate (Δu),
  - trend growth rate of real output per hour (g̅Y/H; five-year trailing average of labor productivity growth rate),
  - labor underutilization measures (share of employed workers who take part-time jobs involuntarily, share of employed workers with temporary contracts).

### Key estimated associations (selected coefficients preserved)
- Unemployment rate: 1 percentage point increase associated with a 0.3 to 0.4 percentage point decline in nominal wage growth (examples: -0.332***, -0.366***, -0.394***).
- Lagged inflation: 1 percentage point increase associated with a 0.2 percentage point increase in nominal wage growth (examples: 0.215***, 0.161***, 0.291***).
- Trend productivity growth (five-year trailing average): 1 percentage point increase associated with a 0.7 percentage point increase in nominal wage growth (example: 0.697***); other estimates range 0.4 to 0.9 percent; coefficient implied from other studies: 0.781.
- Instrumental variable: lagged inflation instrumented with the two-quarter-lagged change in oil price; IV first-stage F-statistics reported above 10.

### Involuntary part-time employment and temporary contracts — empirical findings
- Involuntary part-time employment:
  - Full sample: a 1 percentage point increase in the involuntary part-time employment share is associated with a 0.3 percentage point decline in nominal wage growth (Table 6/7 summary).
  - Subsamples by 2016 unemployment vs 2000–07 average:
    - Group A (unemployment lower than 2000–07 average): a 1 percentage point increase in the involuntary part-time employment share associated with a 0.7 percentage point decline in wage growth (examples: -0.535**, -0.653** in IV specifications).
    - Group C (unemployment appreciably higher than 2000–07 average): estimated effect about a 0.2 percentage point decline in wage growth (examples around -0.186* to -0.291*).
  - Effect remains after controlling for unemployment rate, change in unemployment rate, lagged inflation, and trend productivity growth.
  - Robust across alternative wage measures.
- Temporary contracts:
  - The temporary contract share does not have a statistically significant effect on aggregate wages for the whole sample or for subgroups; measurement and definitional differences across countries are noted as caveats.

### Representative numeric estimates (selected)
- Unemployment rate coefficients: -0.332***, -0.366***, -0.394***.
- Change in unemployment rate examples: -0.114***, -0.0836**, -0.124***.
- Lagged inflation examples: 0.215***, 0.161***, 0.291***.
- Trend productivity growth: 0.697*** (five-year trailing average, column 2, Table 3).
- Involuntary part-time employment share:
  - Full sample IV: -0.275*** (Table 5, column 5).
  - Group A IV: -0.653** (Table 5, column 6; Table 6, column 5).

### Interpretation
- Headline unemployment and output-gap measures matter, but rising involuntary part-time employment indicates additional latent slack not captured by headline unemployment.
- Composition changes—more part-time and temporary work, fewer hours—contribute to weaker aggregate wage growth, particularly where unemployment is low relative to precrisis averages.

---

### 1. All Countries — contributions, common components, underlying drivers

### C. Contributions to changes in nominal wage growth
- For countries with unemployment rates below their 2000–07 averages:
  - About two-thirds of the observed decline in nominal wage growth since 2008 (relative to 2000–07) can be explained by slower trend productivity growth; effect larger in 2015–16 than earlier.
  - Lower slack since 2014 would have acted to increase nominal wage growth in these low-unemployment countries, but involuntary part-time employment continued to weigh on wages.
- For countries with unemployment rates still above pre-crisis levels:
  - Conventional slack measures explain about half of the slowdown in nominal wage growth since 2007.
  - Involuntary part-time employment is an additional drag; productivity growth plays a smaller role.

### D. Common components and residuals
- Time effects in OLS regressions capture significant common/global factors; advanced-economy averages of lagged inflation, trend productivity growth, unemployment, and involuntary part-time employment together explain over 70 percent of the total variation in the estimated year fixed effects.
- Residual after accounting for drivers remains negative after 2009 and especially during 2014–16, possibly reflecting increased integration and external factors.

### E. Underlying drivers — selected coefficient examples (Table 8, column (1))
- Involuntary Part-Time Employment Share: -0.275*** (standard error 0.0829)
- Unemployment Rate: -0.182*** (standard error 0.0438)
- Change in Unemployment Rate: -0.263*** (standard error 0.0887)
- Lagged Inflation: 0.300* (standard error 0.164)
- Trend Productivity Growth Rate: 0.624*** (standard error 0.106)
- Change in Foreign Value Added as a Share of Exports (relative to five years ago): 0.0944** (standard error 0.0424)
- Change in the Relative Price of Investment (relative to five years ago): 0.114*** (standard error 0.0302)
- Change in the Union Density Rate (relative to five years ago): -0.330*** (standard error 0.0774)
- Instrument for lagged inflation: two-quarter-lagged change in oil price; first-stage F-statistics above 10. Country fixed effects included.

### Robustness excluding 2008–2009 (Table 9, column (1))
- Involuntary Part-Time Employment Share: -0.213** (standard error 0.0912)
- Unemployment Rate: -0.174*** (standard error 0.0428)
- Change in Unemployment Rate: -0.400*** (standard error 0.118)
- Lagged Inflation: 0.502** (standard error 0.208)
- Trend Productivity Growth Rate: 0.768*** (standard error 0.101)

### Drivers of involuntary part-time employment (Table 10; dependent variable = involuntary part-time employment share in logs)
- Output Gap: -0.265*** (standard error 0.030)
- Expected Growth: -0.454*** (standard error 0.134)
- Change in Relative Price of Investment (relative to five years ago): -0.122*** (standard error 0.018)
- Change in Foreign Value Added as a Share of Exports (relative to five years ago): 0.037 (standard error 0.033)
- Change in Union Density Rate (relative to five years ago): 0.007 (standard error 0.028)
- Change in Share of Service Sector Workers (relative to five years ago): 0.085*** (standard error 0.023)

### Synthesis
- More negative output gaps, lower medium-term growth expectations, automation (proxied by the relative price of investment), and a rising services-sector share are associated with higher involuntary part-time employment, consistent with compositional and cyclical forces increasing latent slack.

---

### 3. Strictness of Employment Protection — sectoral analysis and implications

### Sample and approach
- Annual data, sample of 20 advanced economies, 2000–2015.
- Sectoral regressions with country, sector, and year fixed effects; interactions to exploit sectoral exposure to aggregate forces.
- Key explanatory variables include aggregate output gap, lagged inflation, trend productivity growth (five-year trailing average), sectoral expected growth, trade openness measures, change in relative price of investment, and five-year change in union density rate.

### Drivers of sectoral nominal wage growth (selected estimates, Group A; Table 12)
- Aggregate Output Gap: -0.221** (standard error 0.0750)
- Aggregate Output Gap * Correlation: -0.183 (standard error 0.138)
- Expected Growth (Sectoral): 0.189* (standard error 0.0716)
- Change in Relative Price of Investment: 0.256** (standard error 0.0861)
- Notes: significance levels: * p < .10; ** p < .05; *** p < .01.

### Drivers of sectoral part-time employment shares (selected estimates; Table 13)
- Expected Growth (Sectoral): -0.137** (standard error 0.0573)
- Change in Relative Price of Investment: -0.147*** (standard error 0.0464)
- Change in Relative Price of Investment * Capital Intensity: 0.00118** (standard error 0.000419)
- Regression diagnostics: R2 ranges 0.806 to 0.824 across specifications.

### Joint endogeneity (3SLS) and robustness
- 3SLS treating nominal wage growth, employment growth, and part-time employment as jointly determined yields, for example:
  - Part-Time Employment equation: Aggregate Output gap 0.284*** (standard error 0.0334).
  - Correlation of Sectoral and Aggregate Output Growth: -0.388** (standard error 0.172).
- Results robust to:
  - Interacted sector-year fixed effects;
  - Using three-year nonoverlapping averages;
  - Omitting smaller advanced economies;
  - Including skill composition where available;
  - Alternative trade and bargaining-power measures.
- Caveats: sectoral data are noisier and panel is unbalanced; some sectoral variables have limited coverage.

### Substantive summary
- Labor market slack is a key driver of sluggish wage dynamics, but headline unemployment may understate slack because of rising involuntary part-time employment and temporary contracts.
- Aggregate part-time employment, temporary contracts, and hours per worker reflect weak final demand and compositional shifts toward services and more flexible employment arrangements.
- Automation (proxied by the relative price of investment goods) contributed only a small amount to subdued wage dynamics after the Great Recession because the recent decline in that relative price was limited; a renewed decline could weigh more on wage growth in the future.
- Cross-country heterogeneity:
  - High-unemployment economies (examples cited in source: Italy, Portugal, Spain): high unemployment can explain about half of the slowdown in nominal wage growth since 2007; involuntary part-time employment is an additional drag.
  - Low-unemployment economies (examples cited in source: Germany, Japan, the United States, the United Kingdom): slow productivity growth can account for about two-thirds of the slowdown in nominal wage growth since 2007.

### Policy implications (sectoral and aggregate)
- Where slack is binding, continued accommodative policies are necessary until slack diminishes meaningfully.
- Where slow productivity growth dominates, policies to lift productivity—innovation, investment, skills—are central to wage recovery.
- Monitor multiple automation channels beyond the relative price of investment goods.
- Design labor market policies addressing involuntary part-time employment and temporary contracts while minimizing adverse impacts on labor market flexibility and job creation.

*Source: wp1850 - 3. Strictness of Employment Protection (IMF working paper content as provided).*

---

### Evidence on labor-market slack and policy recommendations (concluding synthesis)

### Evidence summary
- Involuntary part-time employment weighs on wage growth, indicating greater slack than headline unemployment rates capture.
- Involuntary part-time employment associates with cyclical conditions and slower-moving drivers: automation, diminished medium-term growth expectations, and a rising importance of services.
- Some developments suggest persistent structural changes in the nature of work and employment relations, not purely cyclical effects.

### Policy recommendations (examples preserved from source)
- When determining pace of exit from accommodative monetary policies, assess the true degree of slack beyond headline unemployment.
- Consider initiatives to enhance income security for part-time and temporary workers such as:
  - strengthening secondary and tertiary education to upgrade skills;
  - broadening minimum wage coverage where it does not currently include part-time workers;
  - offering prorated paid annual, family, and sick leave to secure parity with full-time workers;
  - providing subsidized training for part-time workers for reskilling and retooling.
- Policy design for income security should minimize adverse impacts on labor market flexibility and job creation.
- Reconsider social insurance structures if changes in employment nature reflect longer-term structural shifts rather than cyclical phenomena.

*Source: wp1850 - 2007. Even here, however, involuntary part-time employment appears to be weighing on (IMF working paper content as provided).*

### INTRODUCTION ...........................................................................................................

### INTRODUCTION

### Key questions and focus
- Drivers: How well do aggregate macroeconomic factors such as labor market slack, inflation expectations, and trend labor productivity growth account for nominal wage dynamics observed across advanced economies since the Great Recession? How has the evolving mix of full-time versus involuntary part-time employment and open-ended versus temporary work contracts affected labor market slack and hence wage dynamics?
- Underlying changes: How have changes in firms’ incentives and constraints (for example, related to changing expectations about medium-term growth prospects, technology, and global production processes) affected nominal wage setting and part-time employment? What impact have shifts in bargaining power (arising, for example, from changes in employment regulations, unionization, and degree of import competition) had on wages and part-time employment?

### Main findings (aggregate)
- Macroeconomic factors—headline unemployment, underutilization in the form of involuntary part-time employment, inflation expectations, and trend productivity growth—can account for the bulk of cross-country variation in nominal wage growth in recent years.
- Common factors have exerted increasing downward pressure on wage inflation in the aftermath of the global financial crisis and especially during 2014–16.
- For some euro area economies with large precrisis current account deficits, policy measures to slow wage growth and improve competitiveness following the global financial crisis and euro area sovereign debt crisis likely contributed to subdued wage growth.
- The presence of sizable common factors behind wage weakness may reflect:
  - growing influence of foreign labor market conditions through cross-border economic integration;
  - broad-based and synchronized demand weakness across many countries; and/or
  - heightened concern about job losses after the global financial crisis and the euro area sovereign debt crisis.

### Heterogeneity across country groups
- In economies where unemployment rates are still appreciably above their averages before the Great Recession:
  - Conventional measures of labor market slack explain about half of the slowdown in nominal wage growth since 2007.
  - Involuntary part-time employment acts as a further significant drag on wages.
  - Productivity growth is relatively less important because these economies generally had lower productivity growth to begin with, and less of a slowdown.
- In economies where unemployment rates are below their averages before the Great Recession:
  - Slow productivity growth can account for most—about two-thirds—of the slowdown in nominal wage growth since 2007.
  - Even in these economies, involuntary part-time employment appears to weigh on wage growth, suggesting greater slack than headline unemployment indicates.

### Role of involuntary part-time and temporary contracts
- Subdued nominal wage growth has occurred alongside:
  - a higher rate of involuntary part-time employment,
  - an increased share of temporary employment contracts, and
  - a reduction in hours per worker.
- Involuntary part-time employment has risen more in countries where output is estimated to fall short of its potential.
- Once slack is controlled for, involuntary part-time employment increases more where:
  - medium-term growth expectations have fallen more,
  - automation has progressed faster, and
  - the importance of services in the economy has increased.

### Policy-relevant implications
- Accommodative policies can help lift demand and lower headline unemployment rates, but:
  - wage growth may remain subdued until involuntary part-time employment diminishes or trend productivity growth picks up;
  - inflation rates will likely remain low unless wage growth accelerates beyond productivity growth in a sustained manner.
- Assessing the true degree of slack beyond measured headline unemployment rates is important for judging the appropriate pace of exit from accommodative monetary policies.
- Addressing income security for workers in part-time jobs or temporary contracts could include:
  - tackling slack,
  - supporting retraining and reskilling,
  - addressing remaining labor market and structural rigidities, and
  - ensuring fairness of treatment across employees under various types of contracts.

*Source: INTRODUCTION, wp1850 (IMF Working Paper).*

### 1. Unemployment Rate

### 1. Unemployment Rate

### B. Involuntary Part-Time Employment, Temporary Contracts, Hours — key findings
- Involuntary part-time employment increased across virtually the entire sample in 2009 and remains above the 2007 level in more than three-quarters of countries. (Changes shown are 2016 values relative to the 2000–07 average.)
- Country examples (involuntary part-time employment shares):
  - United States: increased from 0.8 percent in 2007 to 1.3 percent in 2016.
  - United Kingdom: increased from 2.4 percent in 2007 to 3.9 percent in 2016.
  - France: increased from 5.3 percent in 2007 to 7.8 percent in 2016.
  - Germany: 2016 involuntary part-time employment share is 3.1 percent, above the 2.7 percent average for 2000–07.
- Relationship with unemployment: the largest increases in involuntary part-time employment occurred in economies with unemployment rates above their 2000–07 averages; however, even economies with unemployment rates close to their 2000–07 averages exhibit higher involuntary part-time shares than before the crisis.
- Temporary contracts:
  - By 2016, in just over half the economies, the temporary contract share was higher than in 2007.
  - Temporary contracts are now more common than in 2000–07 for most advanced economies.
  - Note on Japan: the share of temporary contract workers dropped by close to 6 percentage points compared with the 2000–07 average, but broader category of “nonregular” workers increased as a share of overall employment during this period.
- Hours per worker:
  - In more than half of the economies, hours per worker are at least 2 percent below pre–Great Recession levels. (Panel measures show log-level differences relative to 2007 and average changes for 2009–16.)
  - Declines in hours per worker predate the crisis and the pattern continued after it.
  - Hours declined more in sectors with higher shares of low- and middle-skilled workers.
  - Declining hours tend to be associated with higher shares of involuntary part-time employment.
  - Example (zero-hours contracts in the United Kingdom): share rose from 0.6 percent in 2010 to 3 percent in 2016.

### C. Separating compositional shifts from common patterns across sectors — key findings
- Analysis uses data for 21 sectors across 31 advanced economies since 2000 to examine whether aggregate changes reflect within-sector developments or compositional shifts in employment toward sectors with different job-attribute levels.
- General result: compositional changes seem to play greater roles for part-time employment shares, temporary contracts, and hours per worker than for growth in nominal wages.
- Specific compositional-effect statistics (2009–16 changes and imputed changes using 2008 employment shares):
  - Part-time employment:
    - 26 countries experienced an increased share of part-time workers.
    - In 12 of the 26 countries, compositional change accounted for more than 25 percent of the increase.
    - In 4 countries, compositional change accounted for more than half the increase.
  - Temporary contracts:
    - 19 of the 26 countries experienced an increase in the temporary contract share of employment.
    - Compositional change accounted for more than 25 percent of the increase in 7 of those countries.
    - In 3 countries, compositional change accounted for more than half the increase.
  - Hours per worker:
    - Declines in hours per worker were seen in 25 countries.
    - Compositional change accounted for more than 25 percent of this decrease in 10 countries.
    - In 5 countries, compositional change accounted for more than half the decrease.
- Figures comparing actual average changes to imputed changes (using 2008 sectoral employment shares) show:
  - Points on the 45-degree line indicate within-sector developments drive aggregate dynamics.
  - Points off the 45-degree line indicate compositional change contributed to overall development.
  - Points marked in red indicate cases where the indicator deteriorated during 2009–16 and compositional change amplified the decline.

### Other labor-market patterns and measures referenced
- Distribution and correlation analyses:
  - Distribution of nominal wage growth and correlation with changes in the unemployment rate (changes shown are 2016 values relative to the 2000–07 average).
  - Growth of nominal compensation per hour and its percentage point difference relative to 2007.
- Notes on measurement:
  - The wage variable used is compensation per hour of workers excluding the self-employed (in some figures annual wage per worker excluding the self-employed).
  - Involuntary part-time workers are those working less than 30 hours a week because they could not find a full-time position; the involuntary part-time employment share is calculated as the total number of involuntary part-time workers divided by total employment.
  - Temporary workers are people with work contracts of limited duration; thresholds are country specific; the share of temporary contracts is calculated as the number of temporary workers divided by total employment.
  - Hours per worker figures are reported as log-level differences relative to 2007 and average changes over 2009–16 in panels shown.
  - Data labels in figures use International Organization for Standardization (ISO) country codes.

*Source: wp1850 - 1. Unemployment Rate (PDF chapter/section) — figures and text as provided.*

### 2. Temporary Contracts

### 2. Temporary Contracts

### Sectoral shifts and employment arrangements
- During 2009–16, declining employment shares in sectors with low part-time employment (mining and manufacturing) and faster increases in employment in sectors with higher part-time employment shares (services) contributed to a rising share of part-time employment.
- A similar pattern emerged for temporary contract shares and hours per worker.
- Shifts in employment shares across sectors can explain:
  - about 22 percent of the increase in part-time employment,
  - 18 percent of the increase in temporary contracts,
  - 23 percent of the reduction in hours per worker.
- Sectors with traditional employment arrangements (smaller shares of temporary contracts and part-time employment, longer hours per worker) have seen outright declines or weaker employment growth compared with sectors with more flexible arrangements.

### Drivers of recent wage dynamics — framework and key determinants
- Nominal wage growth remains lower than before the Great Recession in most advanced economies.
- The empirical framework is a wage Phillips curve (based on Gali (2011)) for nominal wage growth (compensation per hour, excluding self-employment), controlling for:
  - lagged year-over-year inflation (lagged inflation),
  - unemployment rate (u),
  - change in unemployment rate (Δu),
  - trend growth rate of real output per hour (g̅Y/H; five-year trailing average of labor productivity growth rate),
  - labor underutilization measures (share of employed workers who take part-time jobs involuntarily, share of employed workers with temporary contracts).
- Rationale:
  - Lagged inflation and inflation expectations capture indexation/forward-looking wage setting.
  - Unemployment rate proxies labor market slack; change in unemployment captures entering/exiting recession dynamics.
  - Trend labor productivity growth raises firms’ willingness/ability to raise wages; wage growth linked to trend productivity rather than contemporaneous productivity.

### Empirical estimates — slack, inflation, and productivity
- Sample and data:
  - Dependent variable: year-over-year growth rate of compensation per hour of workers excluding the self-employed.
  - Quarterly frequency from the first quarter of 2000 to the fourth quarter of 2016 (Tables 3 and 4); some annual-frequency analyses from 2000 to 2016 (Tables 5–7).
- Key estimated associations (panel OLS and IV results):
  - A 1 percentage point increase in the unemployment rate is associated with a 0.3 to 0.4 percentage point decline in nominal wage growth (estimates reported: -0.332***, -0.366***, -0.394***, etc.).
  - A 1 percentage point increase in lagged inflation is associated with a 0.2 percentage point increase in nominal wage growth (examples: 0.215***, 0.161***).
  - A 1 percentage point increase in trend productivity growth is associated with a 0.7 percentage point increase in nominal wage growth (estimate: 0.697***; other estimates range 0.4 to 0.9 percent, with 0.781 noted as implied by other studies).
- Instrumental variables:
  - To address endogeneity of lagged inflation, lagged inflation is instrumented with the two-quarter-lagged change in oil price; IV estimates support the main results (first-stage F-statistics above 10 reported).
- Robustness:
  - Results robust to excluding smaller advanced economies (columns 5–7, Table 3) and to using the aggregate output gap as an alternative measure of slack (Table 4).
  - Alternative measures of inflation expectations (e.g., ten-year inflation expectation) and alternative trend productivity measures (three-year vs five-year trailing averages) produce broadly similar findings.

### Latent slack and the role of changing employment composition
- Concern: Headline unemployment rates may understate true slack if rising involuntary part-time employment and temporary contracts hide worker underutilization (U-6 and related broader slack measures).
- Extension: Wage Phillips curve augmented with shares of involuntary part-time employment and temporary contracts to capture latent slack not reflected in headline unemployment.

### Empirical findings on involuntary part-time employment and temporary contracts
- Involuntary part-time employment:
  - Across all countries, on average, a 1 percentage point increase in the involuntary part-time employment share is associated with a 0.3 percentage point decline in nominal wage growth (Table 6/7 and summary text).
  - Subsample results by 2016 unemployment relative to 2000–07 average:
    - Countries with unemployment rates lower than 2000–07 average (Group A): a 1 percentage point increase in the involuntary part-time employment share is associated with a 0.7 percentage point decline in wage growth (e.g., estimates: -0.535**, -0.653** in IV specifications).
    - Countries with unemployment rates appreciably higher than 2000–07 average (Group C): the estimated effect is about a 0.2 percentage point decline in wage growth (e.g., point estimates around -0.186* to -0.291* depending on specification).
  - The effect of involuntary part-time employment on wage growth remains after controlling for unemployment rate, change in unemployment rate, lagged inflation, and trend productivity growth.
  - Results are robust across alternative wage measures: compensation per employee, compensation per hour, wage per hour (figures and tables report similar patterns).
- Temporary contracts:
  - The temporary contract share of employment does not have a statistically significant effect on aggregate wages for the whole sample or for different subgroups (the analysis notes possible measurement issues due to cross-country comparability and legal definitions of temporariness).

### Quantitative example coefficients (selected reported estimates)
- Unemployment rate coefficient examples: -0.332*** (OLS), -0.366*** (OLS), -0.394*** (IV).
- Change in unemployment rate: examples include -0.114***, -0.0836**, -0.124*** (some country-specific estimates differ in sign/magnitude).
- Lagged inflation: examples include 0.215***, 0.161***, 0.291***.
- Trend productivity growth rate (five-year trailing average): 0.697*** (column 2, Table 3); panel range across studies 0.4 to 0.9; coefficient implied from other studies: 0.781.
- Involuntary part-time employment share (full-sample and Group A IV examples):
  - Full sample IV: -0.275*** (Table 5, column 5).
  - Group A IV: -0.653** (Table 5, column 6) and -0.653** (Table 6, column 5) for compensation per hour and related wage measures.

### Interpretation and implications
- Labor market slack measures matter: both headline slack (unemployment, output gap) and slower-moving factors (trend productivity growth) help explain weak nominal wage growth.
- Composition changes in employment—particularly rising involuntary part-time work—appear to have weighed on aggregate wage growth, especially in countries where unemployment is below precrisis averages.
- Temporary contracts, as measured for cross-country comparability, do not show a significant aggregate wage impact in this analysis, though measurement limitations are noted.

*Source: IMF working paper chapter "2. Temporary Contracts", based on analyses covering 2000–2016 (quarterly and annual samples as specified in the tables).*

### 1. All Countries

### 1. All Countries

### C. Contributions to Changes in Nominal Wage Growth
- Main finding: For countries with unemployment rates below their 2000–07 averages, about two-thirds of the observed decline in nominal wage growth since 2008 (relative to 2000–07) can be explained by slower trend productivity growth; this effect is larger in 2015–16 than in previous years.
- Slack and part-time effects:
  - Lower slack (measured by the unemployment rate and its change) would have acted to increase nominal wage growth since 2014 for these low-unemployment countries.
  - Involuntary part-time employment continues to weigh on nominal wage growth (Figure 13, panel 1).
- For countries with unemployment rates still above pre-crisis levels:
  - Conventional measures of labor market slack can explain about half of the slowdown in nominal wage growth since 2007.
  - Involuntary part-time employment further weighs on wages, although it may have supported labor force participation relative to unemployment.
  - Productivity growth plays a smaller role in this group, possibly because it was already slow before the crisis (Figure 13, panels 2 and 3).
- Robustness: Figure 14 shows a similar decomposition based on a regression with year fixed effects; the relative importance of slack versus productivity shown in Figure 12 remains valid when year fixed effects are included.

### D. Common Components
- Common/global factors and spillovers:
  - Domestic conditions driving wages (such as unemployment) have a significant common component due to cross-country linkages and global factors; domestic weakness in one country can put downward pressure on wages in others through the threat of production relocation.
  - Statistically significant time effects in OLS regressions capture these common factors.
- Quantitative summary:
  - Advanced economy averages of lagged inflation, trend productivity growth, unemployment, and involuntary part-time employment together can explain over 70 percent of the total variation in the estimated year fixed effects.
- Residual pattern:
  - Even after accounting for these drivers, there is a negative residual after 2009, and especially during 2014–16 (Figure 15).
  - The residual may reflect increased integration and other external factors that weigh on wage growth (including effects of synchronized recessions and policy measures to slow wage growth and improve competitiveness).

### E. Underlying Drivers
- Context: Subdued nominal wage growth and changes in employment occurred alongside declining potential growth, automation and trade-integration-related changes to production, and changes in labor market institutions (Figures 16 and 17).
- Empirical approach:
  - Cross-country panel regression of 36 countries from 2000 to 2016, with country and year fixed effects and controlling for the output gap, using the share of involuntary part-time workers as the main dependent variable.
  - Secular drivers considered: five-year change in union density rate (worker bargaining power), five-year change in share of employment in the services sector, five-year change in the relative price of investment (proxy for technological change/automation), growth expectations, and five-year change in foreign value added as a percent of exports (proxy for global value chain integration).
- Augmented wage Phillips curve (selected coefficient examples from Table 8, column (1)):
  - Involuntary Part-Time Employment Share: -0.275*** (standard error 0.0829)
  - Unemployment Rate: -0.182*** (standard error 0.0438)
  - Change in Unemployment Rate: -0.263*** (standard error 0.0887)
  - Lagged Inflation: 0.300* (standard error 0.164)
  - Trend Productivity Growth Rate: 0.624*** (standard error 0.106)
  - Change in Foreign Value Added as a Share of Exports (relative to five years ago): 0.0944** (standard error 0.0424)
  - Change in the Relative Price of Investment (relative to five years ago): 0.114*** (standard error 0.0302)
  - Change in the Union Density Rate (relative to five years ago): -0.330*** (standard error 0.0774)
  - Note: The instrumental variable for lagged inflation is the two-quarter-lagged change in oil price. First-stage F-statistics above 10. Country fixed effects included. Sample and dependent variable details as in the source.
- Robustness excluding 2008–2009 (selected coefficient examples from Table 9, column (1)):
  - Involuntary Part-Time Employment Share: -0.213** (standard error 0.0912)
  - Unemployment Rate: -0.174*** (standard error 0.0428)
  - Change in Unemployment Rate: -0.400*** (standard error 0.118)
  - Lagged Inflation: 0.502** (standard error 0.208)
  - Trend Productivity Growth Rate: 0.768*** (standard error 0.101)
- Interpretation of secular drivers:
  - Automation (proxied by the relative price of investment goods) and diminished medium-term growth expectations consistently weigh on nominal wage growth, regardless of inclusion of Great Recession years.
  - The coefficient on change in union density is sensitive to sample period and inclusion of its level as a control.
  - Changes in regulations related to individual and collective dismissals (employment protection) are not statistically significant for nominal wage growth in these specifications.
  - The limited decline in the relative price of investment goods in recent years (compared to the earlier downward trend) suggests automation may not have had a large contribution to subdued wage dynamics following the Great Recession.
- Drivers of involuntary part-time employment (Table 10, aggregate analysis; dependent variable = involuntary part-time employment share in logs):
  - Output Gap: -0.265*** (standard error 0.030)
  - Expected Growth: -0.454*** (standard error 0.134)
  - Change in Relative Price of Investment (relative to five years ago): -0.122*** (standard error 0.018)
  - Change in Foreign Value Added as a Share of Exports (relative to five years ago): 0.037 (standard error 0.033)
  - Change in Union Density Rate (relative to five years ago): 0.007 (standard error 0.028)
  - Change in Share of Service Sector Workers (relative to five years ago): 0.085*** (standard error 0.023)
  - Country and year fixed effects included. Number of observations and R-squared values reported in source.
- Synthesis:
  - A more negative output gap is associated with an increase in involuntary part-time employment.
  - Beyond cyclical factors, lower medium-term growth expectations, automation, and a higher services-sector share of employment are associated with higher involuntary part-time employment, consistent with compositional shifts in advanced-economy labor markets.

*Source: wp1850 - 1. All Countries (IMF working paper content as provided).*

### 3. Strictness of Employment Protection

### 3. Strictness of Employment Protection

### Sectoral analysis: scope and approach
- Sample: annual data for a sample of 20 advanced economies, 2000–2015.
- Dependent variables analyzed at sector level: nominal wage growth and part-time employment shares (total part-time employment, including voluntary and involuntary).
- Key explanatory factors (country- and sector-level):
  - Near-term: aggregate output gap, inflation; interaction of aggregate output gap with sectoral correlation with the aggregate economy.
  - Medium-term: trend productivity growth (five-year trailing average), sectoral expected growth (five-year trailing average of sectoral gross output growth), aggregate expected growth.
  - Trade openness: final imports as a share of gross output, exports, intermediate exports, global value chain participation.
  - Technological progress: change in the relative price of investment; interacted with sectoral capital intensity.
  - Worker bargaining power: five-year change in union density rate; alternative measures include bi- or tripartite agreement, level of bargaining, and whether bargaining is predominantly firm-level.
- Regression specification: yijt = αi + μj + τt + βXijt + γZj t with country, sector, and year fixed effects; interactions used to exploit sectoral variation in exposure to aggregate forces.
- Sectoral expected growth is constructed as a five-year trailing average of sectoral gross output growth.

### Results — drivers of sectoral nominal wage growth (high-level)
- Diminished sector-specific slack is associated with higher nominal wage growth in countries where unemployment in 2016 was below 2000–07 averages.
- Automation (proxied by the relative price of investment) and medium-term growth expectations are generally associated with lower wage growth in economies where unemployment is at or below pre-crisis averages.
- In countries where unemployment rates are still appreciably above 2000–07 averages, slack and past inflation are the largest drags on nominal wage growth.
- Where unemployment is moderately above former averages, structural factors—automation and medium-term growth expectations—play a role.
- Sectoral trend productivity growth does not show a significant effect in the sectoral regressions (possible explanation: spillovers across sectors and cross-sector labor mobility weaken sector-level links).
- Selected coefficient estimates (Table 12, Group A, nominal wage growth regressions):
  - Aggregate Output Gap: -0.221** (standard error 0.0750)
  - Aggregate Output Gap * Correlation: -0.183 (0.138)
  - Expected Growth (Sectoral): 0.189* (0.0716)
  - Change in Relative Price of Investment: 0.256** (0.0861)
- Notes on tables: regressions control for country, sector, and year fixed effects. Sample frequency annual, 2000–2015. Standard errors shown in parentheses. Significance levels: * p < .10; ** p < .05; *** p < .01.

### Results — drivers of sectoral part-time employment shares
- Automation (declining relative price of investment) and lower sectoral medium-term growth expectations are associated with higher shares of part-time employment across sectors.
- Estimated associations in sectoral analysis are broadly similar in magnitude to aggregate analysis for involuntary part-time employment (Figure 20; Table 13).
- Selected coefficient estimates (Table 13):
  - Expected Growth (Sectoral): -0.137** (0.0573)
  - Change in Relative Price of Investment: -0.147*** (0.0464)
  - Change in Relative Price of Investment * Capital Intensity: 0.00118** (0.000419)
- Regression diagnostics (Table 13): R2 ranges from 0.806 to 0.824 across specifications; number of observations varies by specification.

### Joint endogeneity and robustness checks
- Table 14 presents 3SLS estimates treating nominal wage growth, employment growth, and part-time employment as jointly determined and endogenous.
  - Example 3SLS result (Part-Time Employment equation): Aggregate Output gap 0.284*** (0.0334).
  - Correlation of Sectoral and Aggregate Output Growth: -0.388** (0.172).
- Results are robust to:
  - Including interacted sector-year fixed effects.
  - Using three-year nonoverlapping averages instead of annual data.
  - Omitting smaller advanced economies (the Baltic countries).
  - Including skill composition where data permit.
  - Alternative trade measures (exports, intermediate exports, GVC participation).
  - Alternative measures of worker bargaining power (bi- or tripartite agreement, level of bargaining, ease of hiring and firing, strictness of employment protection regulation).
- Caveats: sectoral data are noisier and the panel is unbalanced; sectoral coverage for some variables (e.g., involuntary part-time employment, union density by sector) is limited.

### Summary of substantive findings
- Labor market slack is a key driver of sluggish wage dynamics, but headline unemployment rates may be less informative about slack than in the past.
- Post–global financial crisis developments in advanced economies include:
  - Higher rates of involuntary part-time employment.
  - Increased share of temporary employment contracts.
  - Continued decline in hours per worker.
- Aggregate developments in part-time employment, temporary contracts, and hours reflect:
  - Weak demand for labor (weak final demand for goods and services).
  - Compositional shifts toward sectors with more flexible arrangements (higher part-time and temporary work, shorter hours).
- Less evidence that sectoral shifts in employment composition alone account for subdued wage growth.
- Automation (proxied by the relative price of investment goods) contributed a small amount to subdued wage dynamics following the Great Recession because the recent decline in that relative price was limited compared with earlier trends; a renewed decline could weigh more on wage growth in the future.
- Cross-country heterogeneity:
  - In economies with unemployment rates still appreciably above pre–Great Recession averages (examples cited: Italy, Portugal, Spain), high unemployment can explain about half of the slowdown in nominal wage growth since 2007; involuntary part-time employment is an additional drag. Wage growth is unlikely to pick up until slack diminishes meaningfully, implying a need for continued accommodative policies to boost aggregate demand.
  - In economies where unemployment rates are below pre–Great Recession averages (examples cited: Germany, Japan, the United States, the United Kingdom), slow productivity growth can account for about two-thirds of the slowdown in nominal wage growth since 2007.

### Policy implications (high-level)
- To restore stronger nominal wage growth where slack is binding, continued accommodative policies to boost aggregate demand are necessary until slack diminishes meaningfully.
- Where slow productivity growth is the dominant factor weighing on wages, policies to lift productivity (innovation, investment, skills) are central to wage recovery.
- Monitor automation channels beyond the relative price of investment goods, given multiple channels through which automation may affect wage dynamics.
- Consider labor market policies and institutions that address involuntary part-time employment and temporary contracts as part of broader measures to restore labor market slack and wage momentum.

*Source: wp1850 - 3. Strictness of Employment Protection*

### 2007. Even here, however, involuntary part-time employment appears to be weighing on

### wp1850 - 2007. Even here, however, involuntary part-time employment appears to be weighing on

### Evidence on labor-market slack and wage growth
- Involuntary part-time employment appears to be weighing on wage growth, suggesting greater slack in the labor market than headline unemployment rates capture.
- Involuntary part-time employment is associated with both cyclical factors and slower-moving drivers, such as automation, diminished medium-term growth expectations, and the growing importance of the services sector.
- Some developments point to a persistent shift in the nature of work and employment relations, implying that changes are not purely cyclical.

### Policy implications and recommendations
- Assessing the true degree of slack in these economies is important when determining the appropriate pace of exit from accommodative monetary policies.
- Policymakers may need to enhance efforts to address the vulnerabilities that part-time workers face. Examples of possible initiatives include:
  - Strengthening secondary and tertiary education to upgrade skills over the longer term.
  - Broadening minimum wage coverage where it does not currently include part-time workers.
  - Offering prorated paid annual, family, and sick leave to secure parity with full-time workers.
  - Providing subsidized training for part-time workers for reskilling and retooling.
- Any policy actions to address the income security of workers that hold part-time jobs or temporary contracts should be designed to minimize possible adverse impacts on the flexibility of labor markets and job creation.

### Implications for social insurance systems and longer-term reform
- The rise of part-time employment and temporary contracts challenges the current structure of social insurance systems—instituted in many advanced economies in the aftermath of the Great Depression and World War II—which may be better equipped to handle “binary” employment status (people in the labor force are either employed full-time or unemployed).
- To the extent that changes in the nature of employment are related to longer-term structural shifts, a broader rethink of the nature of social insurance may be needed.

*Source: wp1850 - 2007. Even here, however, involuntary part-time employment appears to be weighing on*

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_Source: https://www.imf.org/-/media/files/publications/wp/2018/wp1850.pdf_