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  3. American Economic Review
  4. September 2003
  5. Interpreting Aggregate Wage Growth: The Role of Labor Market Participation

Interpreting Aggregate Wage Growth: The Role of Labor Market Participation

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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)

Citation

Blundell, Richard, Howard Reed, and Thomas M. Stoker. 2003. "Interpreting Aggregate Wage Growth: The Role of Labor Market Participation." American Economic Review, 93 (4): 1114-1131. DOI: 10.1257/000282803769206223

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JEL Classification

  • E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital
  • J31 Wage Level and Structure; Wage Differentials