Essays on wage determinants in the long and the short run

This thesis consists of three independent chapters, each of which studies the processes behind the determination of workers’ wages. The first chapter takes a long run perspective; it investigates the labour market consequences of advances in automation technology in the late 20th century, with an emphasis on how this technology affected earnings of workers in different occupations, as well as the career choices and opportunities for social mobility of their children. The remaining chapters have a shorter run perspective: the second chapter studies how individual and parental wealth affect job search behaviour and earnings; and the third chapter studies wages over the career-cycle in a particular setting where both earnings and performance can be directly measured: the market for professional footballers. Intergenerational Occupational Mobility and Routine-biased Technological Change: This chapter analyses intergenerational occupational mobility in the presence of routine-biased technological change (RBTC). During the recent era of job polarization, fathers in cognitive jobs became relatively more likely to have sons with cognitive jobs, while the rise in low–skilled manual jobs was mainly accounted for by children of routine workers. These facts, among others, are rationalized in a general equilibrium, overlapping generations model where both financial resources and learning ability are transferred from parents to their children. Education choices are endogenous, and the cost of education depends on the cognitive wage rate – hence both parents’ income and the economy-wide cognitive wage premium affect the education decision. The model is calibrated to the US economy and successfully captures key empirical patterns. Despite depressing routine wages, altruistic preferences meant that routine workers born 1950-1965 saw welfare gains due to RBTC, although they would have preferred a slower adoption. Intergenerational Transfers, Wealth, and Job Search Behaviour: This chapter, which is co-authored with Ludo Visschers, analyzes the effects of individual wealth and parental wealth on job search behaviour. Making use of the quasi-random timing of the 2008 economic stimulus payments in the US, we confirm a finding from the previous literature: an increase in liquid wealth tends to lower job finding rates and increase reemployment wages, especially for lower wage and younger individuals. We also investigate how this finding may generalize to parental wealth. Using data from the 1979 National Longitudinal Survey of Youth, as well as its follow-up child and young adult survey, we find that parental inter-vivos transfers depend on both the (adult) child’s employment status and the income of the parents. This finding suggests that individuals from wealthier background may be better insured against negative labour market shocks such as a job loss. Motivated by this, we estimate the effect of parental income on job search behaviour. In the cross-section, we find that the correlation between parental income and job search behaviour is different from the exogenous wealth shock: richer parents tend to be associated with higher job finding rates as well as higher reemployment wages, even after controlling for a rich set of characteristics. However, when estimating the effect of a job loss of a mother on the job search behaviour of her (adult) children we do find a positive effect on the job finding hazard and a negative effect on the occupational rank of the new job. This effect is stronger for individuals with deceased or absent fathers. We argue that these results motivate further investigation into intergenerational insurance and job search. The Age-wage-productivity puzzle: A Contribution from Professional Football This chapter, which is co-authored with Rachel Scarfe, Carl Singleton and Adesola Sunmoni, concerns the evolution of wages and productivity over a worker’s career. There is a positive relationship between age and wages in most labour markets and occupations. However, the effects of age on productivity are often unclear. We use panel data on the productivity and salaries of all the elite professional footballers in North America to estimate age-productivity and age-wage profiles. We find stark differences between these profiles; while the productivity of professional footballers peaks at the age of 26, wages continue to increase throughout most of their careers. This discrepancy has been observed in other labour markets, and poses the question: why are older workers seemingly overpaid relative to their contemporaneous productivity? The richness of our dataset allows us to consider a number of possible mechanisms that could be responsible. However, we fail to solve the age-wage-productivity puzzle that we have identified in this market

The age-wage-productivity puzzle:Evidence from the careers of top earners

There is an inverted u-shaped relationship between age and wages in most labour markets, but the effects of age on productivity are often unclear. We use panel data in a market of high earners, professional footballers (soccer players) in North America, to estimate age-productivity and age-wage profiles. We find stark differences; wages increase for several years after productivity has peaked, before dropping sharply at the end of a career. This poses the question: why are middle-aged workers seemingly overpaid? We investigate a range of possible mechanisms that could be responsible, only finding evidence that tentatively supports a talent discovery theory

Do high wage footballers play for high wage teams? The case of Major League Soccer

Intuition and sports knowledge suggest that the most talented professional footballers play for the best teams, i.e., positive assortative matching based on productivity. We consider Major League Soccer between 2007 and 2017. We estimate a wage equation, finding that player and team fixed wage premiums are negatively correlated. This is a puzzle, especially because our estimates of players' wage premiums do correlate strongly with measures of their performance on the pitch, and there is evidence of positive teammate sorting. However, the estimated wage premiums of MLS teams are highly and negatively correlated with their success in the league and their home game attendances. This is consistent with an explanation whereby part of an MLS team's success comes from its ability to bargain down the price that it pays for talent

The age-wage-productivity puzzle: evidence from the careers of top earners

There is an inverted u-shaped relationship between age and wages in most labour markets and occupations, but the effects of age on productivity are often unclear. We use panel data on productivity and salaries in a market of high earners, professional footballers (soccer players) in North America, to estimate age-productivity and age-wage profiles. We find stark differences between these profiles; wages continue to increase for several years after productivity has peaked, before dropping sharply at the end of a career. This discrepancy poses the question: why are middle-aged workers seemingly overpaid relative to their contemporaneous productivity? The richness of our dataset allows us to investigate a range of possible mechanisms that could be responsible, including institutional factors, unobserved elements of productivity, and a talent discovery theory, by which teams pay younger players less because their productivity is more uncertain. We find some evidence that tentatively supports this last mechanism

Extreme wages, performance and superstars in a market for footballers

We study the determinants of superstar wage effects, asking whether productivity or popularity-based explanations are more appropriate. We use longitudinal wage and performance data for workers (players) and firms (teams) from a particular market for sports talent: Major League Soccer (MLS) in the United States. We find evidence that the top earners, whose annual salaries are mostly not accounted for by their past MLS performances, when compared alongside other footballers, are paid more because they attract significantly higher stadium attendances and thus revenues. There is no evidence that higher residual salary spending by the teams affects their relative performance in football terms, or that the amounts the teams spend on actual talent affect attendances. Taken together, these results suggest that a popularity-based explanation of superstar wage effects is appropriate among the top earners in this labour market