Chapter 4 - A simple macroeconomic framework for analyzing automation

Instant cities: Urbanization and the rise of San Francisco and Denver: Gunther Barth, (New York: Oxford University Press, Urban Life in America Series, 1975. Pp. xxv + 310. $11·95)

The 2x2x2 Heckscher-Ohlin model predicts that trade openness causes the skill premium to increase in the skill abundant developed countries, and to decrease in the skill scarce developing countries, after trade openness. Empirical evidence, however, shows that the skill premium declined in some developing countries, while others experienced an increase in wage inequality. This paper develops a North-South model, where firms produce a low-skilled and a high-skilled intensive good. The production of a unit of either good involves a continuum of L-tasks and H-tasks. The L-tasks can be performed by low-skilled workers only, and the H-tasks can be performed by high-skilled workers only. The Northern firms can produce the task in their headquarters, or offshore the task to the South. The results suggest there is a threshold skill abundance level in the South, above which countries experience an increase in the skill premium after an improvement in the offshoring technology, and below which countries experience a decrease in the skill premium. In this context, the North offshores the H-tasks to countries that are relatively more abundant in high-skilled labor, and L-tasks to countries that are relatively more abundant in low-skilled labor. Therefore, countries that become the hosts of L-tasks experience a decrease in the skill premium, because there will be higher demand for their low-skilled workers, while those that become the hosts of the H-tasks will experience an increase in the skill premium, because there will be higher demand for their high-skilled workers. This accounts for the asymmetric patterns of skill premia in the South.

For the United States in 1987-2014, I document at business cycle frequencies that the high-skill workers’ employer size wage premium is high (low) in times of low (high) unemployment relative to that of the low-skill workers. Specifically, the differential employer size wage premium between high-skill and low-skill workers has an unconditional correlation of -0.4 with the unemployment rate, and varies by about 6 percent over the business cycle. The skill premium itself does not exhibit a clear business cycle pattern over the sample period.

Abstract.In the context of Singapore's ageing population, the employment of large numbers of low‐skilled foreign workers is proving to be a major challenge to inclusive growth because of the stagnation of low‐wage workers' incomes. In order to address this problem, the author makes the case for introducing a minimum wage to complement existing in‐work benefit schemes. After addressing the commonly voiced objections to a minimum wage system, he suggests ways in which a minimum wage could be implemented in Singapore. New measures to enhance the social safety net and foster more sustainable economic growth are also proposed.

The research presented in this paper examines the influence of values and institutions on the early retirement decision of low and high skilled workers. It not only views the influence of economic incentives to retire early, it also examines the impact of individual values, social norms, and institutions. The study analyses transitions out of work into retirement and uses comparative panel data in 23 countries including the Baltic and many East-European countries from EU-SILC 2005-2008, matched with EVS data for 2008 to estimate multinomial logit models. The results suggest that social norms do influence the early retirement decision, yet not entirely in the way as expected, whereas the effects of individual-level values appear to be negligible. The early retirement age and the statutory retirement age both appeared to be important, but they affect the retirement decision differently. The generosity of old-age pensions, expressed in terms of replacement rates, has the expected pull effect on early retirement. Furthermore, attention was paid to the position of women and low skilled workers facing more uncertainties accompanied with early retirement. The results indicate that there are some gender differences concerning the effects of social norms, and that mainly the institutional factors are more important for women than for men. As to differences across skill levels some social norms appeared more influential for high skilled workers, whereas work ethos exerts a stronger effect on the low skilled workers’ retirement decision. Replacement rates were of greater impact on the low skilled worker decision, but the effects of individual values and the early and statutory retirement age appear not to differ by education or skill level. Lastly, no clear differences were found across the six distinguished welfare regimes including the Eastern regime type.

In our analysis of the impact of robot adoption on the use of flexible contracts in six European countries, we find that control for the type of innovation model that is dominant in an industry is crucial. In a ‘high knowledge cumulativeness’ innovation regime, robot adoption reduces the probability that high-skilled workers will receive temporary contracts, while no significant effect has been found for medium- and low-skilled workers. The rationale is: In a high cumulativeness regime, innovation depends on a firm’s internal knowledge sources, and high-skilled (rather than medium- and low-skilled) workers are crucial carriers of knowledge. The situation is different in ‘low-cumulativeness’ regimes. In the latter, firms are primarily using externally acquired knowledge in their innovation process. This makes workers more easily interchangeable and robot adoption significantly increases the probability to get temporary jobs for both medium- and high-skilled workers, but leaves low-skilled workers unaffected.

The Heckscher-Ohlin model predicts that trade openness causes the skill premium to increase in skill-abundant developed countries, and to decrease in skill-scarce developing countries. Empirical evidence, however, shows that the skill premium declined in some developing countries, while others experienced an increase in wage inequality. This paper develops a North-South model, where firms produce a low-skilled and a high-skilled intensive good. The production of a unit of either good involves a continuum of L-tasks and H-tasks. The L-tasks can be performed by low-skilled workers, and the H-tasks can be performed by high-skilled workers. The Northern firms can produce the task in their headquarters, or offshore the task to the South. The results of the model suggest there is a threshold skill abundance level in the South, above which countries experience an increase in the skill premium after an improvement in the offshoring technology, and below which countries experience a decrease in the skill premium. The same pattern occurs with an improvement in the offshoring technology of tasks in the high-skilled and the low-skilled intensive industries. If wages in local production catch up with wages in the offshoring sector, offshoring does not impact wage inequality at a certain level of skill abundance. A threshold estimation, on 29 developing countries over the period 1982-2000, shows that there is a statistically significant skill abundance threshold, below which the coefficient on the relationship between offshoring and wage inequality is negative, and above which there is no impact of offshoring on wage inequality. Similar results are reached if offshoring is replaced by variables that proxy for the offshoring technology.

Drawing on the general assumption that information is imperfect, this article addresses three main issues. First, why do some migrants return even though the intercountry wage differential does not reverse? And who returns? Second, why do migrants who stay tend to share their higher earnings with others at origin, even in the absence of altruism or of a need to establish an exchange relationship? And can the size of these transfers be predicted? Third, what explains the earnings of migrants? Why do they often dominate the earnings of equivalent native-born workers even if differences in human capital are fully controlled for? The article suggests these answers. First, when informational symmetry is reestablished, the low-skill workers, who are no longer pooled with the high-skill workers, return. Second, migrants' remittances are conceived as side-payments, made under asymmetric information, by high-skill migrant workers to low-skill workers, who, if they were to migrate, would erode the wages of the high-skill workers. And third, the edge migrants have over native-born workers arises from the lower recognition costs of partners to trade whose type is unknown.

This study investigated the impact of the people category of the Sustainable Development Goals (SDGs) on sustainable and conventional economic growth in Asia and the Pacific region, using a sample of 52 selected countries between 2000 and 2023. Employing two distinct models, model A1 for conventional economic growth and model A2 for sustainable economic growth, we explained the relationships between five SDG indicators: employed poverty rate, stunted children, expenditure on health, expenditure of education, and % of women MNAs on economic growth. This study employed a fixed-effect model and random-effect model to investigate the impact of the people category SDGs on traditional and sustainable economic growth. The comparative analysis of each SDG in both models revealed valuable insights. SDG 1, “employed poverty rate”, has a positive impact on economic growth in both models, while SDG 2, “percentage of stunted child”, did not significantly influence economic growth in either model. Moreover, SDG 3 and SDG 4, relating to “government’s health expenditure per capita” and “government’s Education education expenditure per capita”, respectively, exhibited a positive impact on traditional and sustainable economic growth. Conversely, SDG 5, “percentage of women members of national parliament”, displayed an insignificant impact on traditional and sustainable economic growth models. In conclusion, this study suggests that policymakers should prioritize targeted interventions to alleviate employed poverty, enhance healthcare, and boost education spending. Moreover, promoting women’s representation in national parliaments should be approached with context-specific strategies to maximize its impact on economic growth.

This paper analyses the labour market effects and redistributive consequences among natives of the arrival of the Syrian refugees in Turkey. For that, we use the quantitative spatial model developed in Loayza et al. (2021), in which low- and high-skill workers can choose where to live/work and firms within each region can choose to operate in the formal or informal sectors and, if formal, whether to hire their workers formally or not. We use the estimated model to quantify the effects of the ‘refugee shock’ on informality, wages, profits, and tax revenues across regions and the country as a whole. We show that informality increases among low-skill but decreases among high-skill workers and the skill premium increases. Wages of low-skill workers decline substantially in the most affected regions, but tax revenues and profits per worker increase. Redistributing tax revenues can substantially reduce low-skill workers’ losses in most affected areas. In addition, redistributing profits can completely revert both low- and high-skill workers’ losses, even in the most affected regions.

Discussion

This study delves into the intricate dynamics of technology, labor markets, and economic growth within the context of Industry 4.0. By integrating automation capital into a dynamic general equilibrium model, we examine its implications for economic performance and social equity. The empirical analysis highlights the substitutability of unskilled labor by automation, revealing a nuanced relationship between automation adoption, the skill premium, and economic growth. Contrary to conventional wisdom, our findings suggest that a reduced ratio of unskilled to skilled labor, driven by automation, can lead to both an increase in the skill premium and sustained economic growth, even in the face of demographic challenges such as declining populations. However, this trend also exacerbates income inequality, underscoring the imperative for policy interventions aimed at promoting skill enhancement and ensuring equitable distribution of technological advancements.

BackgroundThere is little information on the differential impact of the COVID-19 pandemic on mortality by occupation. The objective was to examine changes in mortality during the COVID-19 period compared with...

This paper uses a two-country dynamic general equilibrium model to consider how, following a trade cost shock, multinational firms’ offshoring decision and the countries’ different factor endowments affect wage inequality between high- and low-skilled workers in the home country. Highlighting task-offshoring, heterogenous firms, and factor proportions, the study sheds light on how offshoring shapes wage inequality along different time horizons. While the paper’s focus is the relationship between the U.S. (home country) and China (foreign country), its findings are more broadly relevant. The three main findings are these: First, both intensive and extensive margins contribute to the widening wage gap, with the latter playing a more important role in the short- to medium- term than it does in the initial stage after the trade cost shock. Second, endogenous firm entry raises wage for both low-skilled and high-skilled workers while also widening the wage gap between the two groups over time. Third, whether firms offshore to a foreign country like Mexico, where the supply of low-skilled laborers is moderately larger than in the home country, or to a country like China, where the supply of low-skilled laborers is vastly larger, makes scant difference to wage inequality in the long term.

Analysis of energy consumption structure on CO[formula omitted] emission and economic sustainable growth