Understanding U.S. Wage Dynamics

IMF Working Papers, June 15, 2018

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Understanding U.S. Wage Dynamics

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Bibliographic details

• Authors: Yasser Abdih, Stephan Danninger
• Published: June 15, 2018
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781484362082.001

Summary and central findings

• The paper undertakes empirical analysis of U.S. wage behavior since the beginning of the new millennium.
• A productivity-augmented Phillips curve model "explains the data fairly well."
• The model shows that upward pressure on wage growth from recent tightening in the labor market has been dampened by:
  • a persistent decline in trend labor productivity growth; and
  • a persistent decline in the share of income that accrues to labor.
• Microeconomic evidence complements the macro findings:
  • Lower regional unemployment puts upward pressure on individual wages, although this effect "has become weaker since 2008."
  • Downward pressure on wages is associated with:
  • occupations exposed to automation and offshoring; and
  • industries with a higher concentration of large firms.
• The authors conclude that multiple factors jointly contribute to the observed moderation in wage growth, making it difficult to single out any one culprit.

Empirical themes and mechanisms

• Macro mechanism:
  • Productivity-augmented Phillips curve captures interaction between labor market tightness and productivity/share-of-income trends.
• Micro mechanisms:
  • Regional unemployment → individual wage pressure (weaker post-2008).
  • Occupational exposure to automation/offshoring → downward wage pressure.
  • Industry concentration (higher share of large firms) → downward wage pressure.

Policy-relevant implications (as presented)

• Recent labor market tightening alone does not fully translate into stronger wage growth because of offsetting declines in trend productivity growth and labor’s income share.
• Addressing wage growth moderation likely requires attention to:
  • reversing or mitigating declines in trend labor productivity growth; and
  • factors affecting the labor share of income.
• Micro-level frictions—automation/offshoring exposure and industry concentration—are important channels shaping wage dynamics and may require targeted policy responses.

Content in this bundle

• Understanding U.S. Wage Dynamics, WP/18/138, June 2018
  • Understanding U.S. Wage Dynamics, WP/18/138, June 2018 (Markdown version)
  • Understanding U.S. Wage Dynamics, WP/18/138, June 2018 (PDF)