NONLINEAR WAGE RESPONSES TO INTERNAL AND EXTERNAL FACTORS
The paper tests whether or not the effects on sectoral wages of
internal and external factors depend upon the sectors relative wage
position. The key hypothesis is that workers in lowwage sectors
are more concerned with relative wages than workers in high wage sectors.
To test the hypothesis, we make use of panel data and formulate a smooth
transition regression model including relative wages as the transition
variable. The empirical results provide strong evidence of nonlinear wage
responses to industry profitability, outside wages and unemployment. The
estimated longrun insider weight and the unemployment effect are
much higher in highwage industries than in lowwage industries.
The main results are robust to alternative transformations of the unemployment
rate and we also provide some evidence of nonlinear effects using regional