Labour market conditions, implicit contracts, and wage determination: evidence from a matched panel dataset for Taiwan

This study uses matched data from Taiwan’s 1979–2024 Manpower Utilization Survey to compare current, entry, and tenure-minimum unemployment rates. The wage-level estimates show a persistent negative association between the tenure-minimum unemployment rate and wages. However, this association becomes substantially smaller after first differencing and changes sign when contemporaneous unemployment changes are included jointly. By contrast, changes in current unemployment remain negatively and significantly associated with within-person wage changes. Therefore, wage-level associations may partially reflect persistent worker heterogeneity, sorting across jobs or firms, job selection, or firm-specific wage-setting practices. Within-person evidence is more compatible with short-term wage adjustments, although it does not definitively identify a pure spot-market mechanism. These findings suggest that wage levels and within-person wage changes capture different dimensions of wage determination, and the implicit-contract interpretation should be viewed as one possible explanation rather than as a uniquely identified mechanism. Exploratory period-specific estimates suggest that the wage-level association with tenure-minimum unemployment is stronger in earlier periods. However, the small post-COVID subsample does not permit inference regarding a structural break.