Monthly Archives: September 2014

WAGE ADJUSTMENT: Summary and Concluding Remarks

Posted by Kathryn Schwartz on September 13, 2014
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In this paper we have examined the effects of exchange rate movements on employment and wages for manufacturing industries in the United States. Exchange rate movements affect the marginal revenue product of labor, and as a result, industry labor demand to the extent that these exchange rate movements affect the marginal profitability of firms in an industry. The paper argues that these movements in the marginal revenue product of labor will depend on the form of external exposure of each particular industry Link.

The effects of an exchange rate movement will be increasing in the export orientation of the industry, the amount of import competition, and the reliance on imported inputs into production of the industry. Other industry characteristics such as an industry’s competitive structure, the composition of its labor force, and the characteristics of the production process will also determine the expected size of labor adjustment to an exchange rate shock.
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WAGE ADJUSTMENT: The Data and Regression Specification 6

Posted by Kathryn Schwartz on September 11, 2014
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Average overtime wage and employment elasticities have remained consistently negative through out the sample period, with a slight absolute value increase.

The relative size of exchange rate effects on industry activity appears to be highly correlated with industry-specific characteristics other than its external orientation. In table 4 we report the results of correlating the estimated elasticities reported in Table 3 with four different industry characteristics: average industry markup during the sample period, unionization rates, percent of workers without a college degree, and industry capital-labor ratios.

A clear pattern of correlation exists between our estimated exchange rate wage and employment elasticities and industry markups and the level of workers’ education. High markup industries have significantly higher estimated elasticities of total and overtime wage to exchange rates and significantly lower employment and overtime activity exchange rate elasticities. Industries with lower shares of non-college-degree workers also have higher elasticities of total wages and overtime wages to exchange rates.
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WAGE ADJUSTMENT: The Data and Regression Specification 5

Posted by Kathryn Schwartz on September 09, 2014
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Industry-Specific Estimates.

The results reported above impose that the effects of all the explanatory variables be the same for all industries (with the exception of the constant term and lagged employment). It is reasonable to think that some of the underlying parameters in the model outlined in section two, such as the industry demand and cost elasticities, to be industry specific. We have attempted to relax this restriction somewhat by splitting the sample between high and low-markup industries and, as seen in Table 1 and 2, and the results do differ. In this section we provide further insights in the differences in the exchange rate effects by industry there.
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WAGE ADJUSTMENT: The Data and Regression Specification 4

Posted by Kathryn Schwartz on September 07, 2014
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From Table 1 observe that permanent exchange rates have significant explanatory power with respect to industry wages in low-markup industries. A dollar depreciation increases the average wages in industries that are more heavily involved in export activity. As industry export orientation rises, so does the role of the dollar in slowing industry wage growth. Industry reliance on imported production inputs can reverse the stimuli to wages associated with dollar depreciations. All else equal, as an industry increases its reliance on imported inputs, dollar appreciations have a smaller role in wage growth restraint.

Indeed, in industries with imported input shares exceeding their export shares, appreciations could potentially accelerate wage growth. The same sign pattern of effects of exchange rates on wages appear for the full sample of industries and for the sub-sample including high-markup industries. However, for neither of them can we reject the hypothesis that the estimated exchange rate effects are jointly insignificant.
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WAGE ADJUSTMENT: The Data and Regression Specification 3

Posted by Kathryn Schwartz on September 05, 2014
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The first sets of regressions consider the role of the exchange rates and other variables in moving industry labor market variables across pooled groups of industries. In addition to pooling across the full sample of manufacturing industries, we compare industry responses in High versus Low Markup industry groups. Specifically, this sample of industries is split according to the median level of average price-over-cost markup across the group of manufacturing industries.

The second set of regressions are for individual industries. While industry-specific regressions are ultimately what one would want, they each have too few observations to fully stand on their own merits. Here For each industry we will show the effects of exchange rates on it’s employment, hours, wages, and overtime activity.
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WAGE ADJUSTMENT: The Data and Regression Specification 2

Posted by Kathryn Schwartz on September 03, 2014
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The total hours series is the product of the employment series and the reported average weekly hours in each industry. Our measure of wages per employee is the average hourly wage in each industry, constructed by dividing the total of wage and salary accruals to all employees in each industry by the number of non-farm employees. Overtime wage is defined as the difference between total average hourly wages and average hourly wages excluding overtime for production and non-supervisory workers as defined by the Bureau of Labor Statistics. Overtime hours are the average weekly overtime hours of production workers.

As detailed in Appendix A, Table 1, there is a fair amount of dispersion of wages and employment across industries and within industries over time. Wages are less variable within industries over time than across industries at points in time. The variability of wages across industries is almost four times higher than the average variability overtime of wages within each industry. Wage variability across industries is also higher than employment variability. Finally, industry overtime wages and employment are considerably more volatile than overall wages and employment.
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WAGE ADJUSTMENT: The Data and Regression Specification

Posted by Kathryn Schwartz on September 01, 2014
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Our regressions examine the effect of exchange rates entered alone in the regressions, which has been the standard in this literature, and also examine the effects of exchange rates interacted with the industry-specific and time-varying channels of trade. While our theory spelled out three distinct channels (exports, import competition and imported inputs) ultimately we use only two interacted channels in the regressions: (i) the export to production share in the industry, and (ii) the share of imported inputs into production costs (Campa and Goldberg 1997). We limited ourselves to these two channels because of the high within-industry correlations between import penetration and imported input use.

The regressions also include the prices of two other inputs: capital and energy. We use the long-term interest rate, measured by the yield in long-term U.S. Government bonds, as a measure of the cost of capital. Real oil prices, measured by the average annual dollar price per barrel of crude petroleum reported by the International Monetary Fund, are used as our measure of energy prices. The net effect for labor demand of an increase in either of these two prices depends on the substitutability versus complementarities of each of these factors with labor. To the extent that technological substitution between that input and labor is possible, an increase in the input price leads to an increase in the demand for labor. To the extent that the factors are complements, the sign of this correlation will be negative.
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