Working Paper: CEPR ID: DP15543
Authors: Raquel Carrasco; J Ignacio GarcáPérez; Juan Jimeno
Abstract: Wage dynamics is closely intertwined with job flows. However, composition effects associated to the different sizes and characteristics of workers entering/exiting into/from employment that may blur the "true" underlying wage growth, are not typically accounted for. In this paper, we take these composition effects into consideration and compute wage growth in Spain during the 2006-2018 period after netting out the consequences of employment dynamics. Our results show that the "true" underlying wage growth in the Spanish economy during recessions (expansions) was, on average, significantly lower (higher) that the observed with raw data. This may help to explain some macro puzzles, such as the "vanishing" Phillips curve.
Keywords: employment dynamics; wage dynamics; composition effects
JEL Codes: J30; J31; J21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Worker flows (J69) | Wage dynamics (J31) |
| Composition effects from worker flows (J69) | Wage growth (J31) |
| Observed wage growth (J31) | True underlying wage growth during recessions (E24) |
| Observed wage growth (J31) | True underlying wage growth during recoveries (J39) |
| Changing weights of workers in different employment statuses (J29) | Wage dynamics (J31) |
| Observed aggregate wage growth (J39) | Underlying wage pressures (J39) |