Understanding U.S. Wage Dynamics

In this paper, we undertake empirical analysis to understand U.S. wage behavior since thebeginning of the new millennium. At the macroeconomic level, we find that aproductivity-augmented Phillips curve model explains the data fairly well. The modelreveals that the upward pressure on wage growth from recent tightening in the labormarket has been dampened by a persistent decline in trend labor productivity growth andthe share of income that accrues to labor. These themes are reinforced and complementedat the micro-economic level. Lower regional unemployment puts an upward pressure onwages of individuals, although this effect has become weaker since 2008. But there isdownward pressure on wages for individuals with occupations that are exposed toautomation and offshoring, and in industries with a higher concentration of large firms.All these factors appear to play a role illustrating why it is difficult to single out any oneculprit for the observed wage growth moderation