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This paper analyzes the relationship between aggregate wages and individual wages when there is time series variation in employment and in the dispersion of wages. A new and easily implementable framework for the empirical analysis of aggregation biases is developed. Aggregate real wages are shown to contain three important bias terms: one associated with the dispersion of individual wages, a second reflecting the distribution of working hours, and a third deriving from compositional changes in the (selected) sample of workers. Noting the importance of these issues for recent experience in Britain, data on real wages and participation for British male workers over the period 1978-1996 are studied. A close correspondence between the estimated biases and the patterns of differences shown by aggregate wages is established. This is shown to have important implications for the interpretation of real wage growth over this period.
Authors
CPP Co-Director
Richard is Co-Director of the Centre for the Microeconomic Analysis of Public Policy (CPP) and Senior Research Fellow at IFS.
Howard Reed
International Research Fellow MIT
Tom is a Gordon Y Billard Professor of Economics at MIT and an International Fellow of IFS. He is a leading researcher in a new field of theory called semi-parametric econometrics, which combines traditional economic models with flexible statistical techniques and has recently applied these methods to studying worldwide carbon monoxide emissions, household gasoline demand, British unemployment, and productivity in U.S. coal mining.
Working Paper details
- DOI
- 10.1920/wp.ifs.1999.9913
- Publisher
- IFS
Suggested citation
R, Blundell and H, Reed and T, Stoker. (1999). Interpreting aggregate wage growth. London: IFS. Available at: https://ifs.org.uk/publications/interpreting-aggregate-wage-growth (accessed: 26 April 2024).
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