Interpreting Aggregate Wage Growth: The Role of Labor Market Participation

Richard Blundell (), Howard Reed and Thomas M. Stoker

American Economic Review, 2003, vol. 93, issue 4, 1114-1131

Abstract: A new and easily implementable framework for the empirical analysis of the relationship between aggregate and individual wages is developed. Aggregate real wages are shown to contain three important bias terms: one associated with the dispersion of individual wages, a second deriving from compositional changes in the (selected) sample of workers, and a third reflecting the distribution of working hours. Their importance for interpreting the path of aggregate wages and of the returns to education for recent experience in Britain is highlighted. A close correspondence between the estimated biases and the patterns of differences shown by aggregate wages is established. (JEL C34, E24, J31)

Date: 2003
Note: DOI: 10.1257/000282803769206223
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