A Multisector Perspective on Wage Stagnation

L. Rachel Ngai and Orhun Sevinc

No 16356, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Low-skill workers are concentrated in sectors experiencing fast productivity growth, yet their real wages have stagnated and lagged behind aggregate productivity. We provide evidence demonstrating the importance of a multisector perspective. Central to our mechanism is the decline in the relative price of the low-skill intensive sector driven by its faster productivity growth. This dampens wage gains for low-skill workers by lowering the price of their output relative to their consumption basket, which is further reinforced by shifting them into the sector where less weight is placed on their labor. We calibrate the two-sector model to the 1980–2010 U.S. economy and find this mechanism to be quantitatively important. Our counterfactual analysis reveals that low-skill real wage growth would have nearly doubled if the observed aggregate productivity growth had been evenly distributed across sectors.

Keywords: relative prices; low-skill wage stagnation; wage-productivity divergence; multisector model; uneven productivity growth (search for similar items in EconPapers)
JEL-codes: E24 J23 J31 (search for similar items in EconPapers)
Pages: 65 pages
Date: 2023-07
New Economics Papers: this item is included in nep-lma and nep-ltv
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Related works:
Journal Article: A Multisector Perspective on Wage Stagnation (2025)
Working Paper: A multisector perspective on wage stagnation (2025)
Working Paper: A Multisector Perspective on Wage Stagnation (2020)
Working Paper: A Multisector Perspective on Wage Stagnation (2020)
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