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Joint Policy Analysis and Management & Labor Economics Workshop - Alex Willen

Wed, 09/20/2017 - 1:15pm

Alex Willen

Cornell University, Ph.D. Candidate

102 Mann Library

"From a Fixed National Pay Scale to Individual Wage Bargaining: The Labor Market Effects of Wage Decentralization"

This paper exploits a Swedish education reform that eliminated the fixed national pay scale for teachers in favor of individual wage bargaining to present the most comprehensive evidence to date on the labor market effects of wage decentralization. Identification of the causal effect of the reform is achieved by using differences in non-teacher wages across local labor markets prior to the reform as a measure of treatment intensity in a difference-in-difference framework. The results show a long-run teacher wage response elasticity of 0.2 with respect to the outside wage. The magnitude of the effect is negatively related to teacher age, such that the reform led to a disproportionate increase in entry wage and a flattening of the age-wage relationship. The analysis further shows that the policy fueled an increase in wage dispersion among young and mid-career teachers. Contrary to the predictions of the Roy model, the results do not reveal any economically significant changes in the composition of teachers. I also do not find any economically significant effects on student long-run educational attainment and labor market outcomes. Three factors help reconcile these findings: (1) the reform causes wage spillover effects to closely related occupations that reduce the labor market impact of the reform; (2) the reform affects spending and resource allocation in ways that offset some of the predicted supply effects of the reform; and (3) wages in Sweden are highly compressed and a response elasticity of 0.2 may not be sufficient for creating large enough differences in absolute wage levels to affect labor supply.

Event Categories: Labor Economics