DP15543 Worker Flows and Wage Dynamics: Estimating Wage Growth Without Composition Effects

Author(s):	Raquel Carrasco, J. Ignacio García-Pérez, Juan F Jimeno
Publication Date:	December 2020
Keyword(s):	Composition Effects, Employment dynamics, wage dynamics
JEL(s):	J30, J31
Programme Areas:	Labour Economics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=15543

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.