A multisector perspective on wage stagnation

Ngai, L. Rachel ORCID: 0009-0005-1605-856X and Sevinc, Orhun (2025) A multisector perspective on wage stagnation. Review of Economic Dynamics, 56. ISSN 1094-2025

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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.

Item Type:	Article
Additional Information:	© 2025 The Author(s)
Divisions:	Economics
Subjects:	H Social Sciences > HB Economic Theory H Social Sciences > HD Industries. Land use. Labor
JEL classification:	E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Employment, and Investment > E24 - Macroeconomics: Employment; Unemployment; Wages; Intergenerational Income Distribution (includes wage indexation) J - Labor and Demographic Economics > J2 - Time Allocation, Work Behavior, and Employment Determination and Creation; Human Capital; Retirement > J23 - Employment Determination; Job Creation; Demand for Labor; Self-Employment J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J31 - Wage Level and Structure; Wage Differentials by Skill, Training, Occupation, etc.
Date Deposited:	06 Jan 2025 10:36
Last Modified:	16 Jan 2025 11:30
URI:	http://eprints.lse.ac.uk/id/eprint/126579

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