Changes In Wage Inequality Research Articles

State capacity, tax evasion, and wage inequality

AbstractThis paper explores how state capacity in the sense of controlling tax evasion affects wage inequality through constructing several general equilibrium models. We analyse six types of redistribution in urban areas, and find that effect variations in urban wage inequality arise depending on the specific recipients of redistribution. Notably, under redistribution to urban unskilled labour, changes in wage inequality will depend on the capital intensity of the urban skilled sector when state capacity increases.

The sources and structure of wage inequality changes in the selected Central-Eastern European Countries

AbstractWe study the determinants of wage inequality and its fluctuations in six Central-Eastern European nations using European Union Statistics on Income and Living Conditions microdata from 2010 to 2019. Wage disparity in these countries changed in distinct ways. Inequality in Czechia and Romania is generally steady, has fallen consistently in Poland and Slovakia, and has increased in Bulgaria. Inequality has been steadily reducing in Hungary but has recently increased significantly. Therefore, this paper questions these countries' primary causes of wage inequality changes. In addition to providing a detailed description of inequality trends in these countries, we focus on examining the demographic and micro-level determinants alongside the minimum wage changes. We estimate these effects using RIF regression and RIF decompositions for various inequality measures. The changes in wage inequality in these countries were driven mainly by wage structure effects regardless of the increase or decrease in wage inequality. Changes in the returns to education and returns to permanent employment contracts are crucial in explaining decreased wage inequality. The increases in wage inequality in Hungary and Bulgaria are defined mainly by the changes in the estimated constants instead of micro-level determinants. The changes in the minimum wage explain most of the unknown factors in Bulgaria, and the spillover effects of the minimum wage may explain most of the unknown factors in Hungary. Our results can support the skill-biased technological change hypothesis in the case of Slovakia, Romania, Czechia, and Bulgaria.

Dynamics of wage inequality over the prolonged economic transformation: The case of Vietnam

This study explores changes in wage inequality in Vietnam during a prolonged period of economic transformation. We found that wage inequality increased in the earlier period of 1998–2010, but declined considerably in the following period of 2010–2020. The change in economic structure and increased supply of higher educated workforce have substantially contributed to changing wage inequality. Overall changes in increasing wage inequality over the former period was mainly due to changes in labor market, job and workers’ observed characteristics. In the latter period, however, the decline in wage inequality was related to changes in the returns to job and workers’ observed characteristics. A rapid rise in supply of higher educated workers, which exceeded the demand for skilled labor, in the later stage of economic transformation also contributed to declining returns to education and the decline in wage inequality.

The evolution of wage inequality within local U.S. labor markets

There are few concentrated studies on wage inequality across local labor markets at the city or metropolitan level. This paper studies the changes in wage inequality among 170 metropolitan areas by using micro-level data from the U.S. Census and American Community Survey from 1980 to 2019. We propose that shifts in the relative demand for “college-educated” or “college equivalent” workers have been persistent in both temporal and spatial dimensions; and that this persistence has contributed to the increase in wage inequality along with the rise in managerial employment. Using fixed-effects models, we find that on average, changes in managerial intensity between 1980 and 2019 accounts for 6.9% of the change in wage inequality across U.S. labor markets.

ICT capital–skill complementarity and wage inequality: Evidence from OECD countries

Although wage inequality has evolved in advanced countries over recent decades, it remains unknown the extent to which changes in wage inequality and their differences across countries are attributable to specific capital and labor quantities. We examine this issue by estimating a sector-level production function extended to allow for capital–skill complementarity and factor-biased technological change using cross-country and cross-industry panel data. Our results indicate that most of the changes in the skill premium are attributable to the relative quantities of ICT equipment, skilled labor, and unskilled labor in the goods and service sectors of the majority of advanced countries.

The decline in capital-skill complementarity

We revisit the capital-skill complementarity hypothesis and examine whether and under what conditions this mechanism can explain the developments in wage inequality and labor share in the 1963–2016 period. Krusell, Ohanian, Ríos-Rull and Violante (2000) show that a model with capital-skill complementarity mechanism matches the data well and can account for changes in wage inequality in the 1963–1992 period. We show that applying the model to the 1963–2016 period delivers a good fit for the skill premium; however, it does not match the declining pattern in labor share in the last two decades. We modify the model to allow for a flexible technology structure and show that the degree of capital-skill complementarity is declining over time. The augmented model with time-varying capital-skill complementarity suggests explanations for the declining labor share.

Tasks, Automation, and the Rise in U.S. Wage Inequality

We document that between 50% and 70% of changes in the U.S. wage structure over the last four decades are accounted for by relative wage declines of worker groups specialized in routine tasks in industries experiencing rapid automation. We develop a conceptual framework where tasks across industries are allocated to different types of labor and capital. Automation technologies expand the set of tasks performed by capital, displacing certain worker groups from jobs for which they have comparative advantage. This framework yields a simple equation linking wage changes of a demographic group to the task displacement it experiences. We report robust evidence in favor of this relationship and show that regression models incorporating task displacement explain much of the changes in education wage differentials between 1980 and 2016. The negative relationship between wage changes and task displacement is unaffected when we control for changes in market power, deunionization, and other forms of capital deepening and technology unrelated to automation. We also propose a methodology for evaluating the full general equilibrium effects of automation, which incorporate induced changes in industry composition and ripple effects due to task reallocation across different groups. Our quantitative evaluation explains how major changes in wage inequality can go hand‐in‐hand with modest productivity gains.

Labor Market Institutions and the Distribution of Wages: The Role of Spillover Effects

This paper examines the role of spillover effects of minimum wages and threat effects of unionization in changes in wage inequality in the United States between 1979 and 2017. A distribution regression framework is introduced to estimate both types of spillover effects. Threat effects double the contribution of deunionization to the increase in male wage inequality. Spillover effects magnify the explanatory power of declining minimum wages to two-thirds of the increase in inequality at the bottom end of the female wage distribution.

Labor Market Institutions and the Distribution of Wages: The Role of Spillover Effects

This paper examines the role of spillover effects of minimum wages and threat effects of unionization in changes in wage inequality in the United States between 1979 and 2017. A distribution regression framework is introduced to estimate both types of spillover effects. Threat effects double the contribution of de-unionization to the increase in male wage inequality. Spillover effects magnify the explanatory power of declining minimum wages to two-thirds of the increase in inequality at the bottom end of the female wage distribution. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

The Decline in Capital-Skill Complementarity

We revisit the capital-skill complementarity hypothesis and examine whether and under what conditions this mechanism can explain the developments in wage inequality and labor share in the 1963–2016 period. Krusell, Ohanian, Rios-Rull, and Violante (2000) show that a model with capital-skill complementarity mechanism matches the data well and can account for the changes in wage inequality in the 1963–1992 period. We show that applying the model to the 1963–2016 period delivers a good fit for the skill premium; however, it does not predict the declining pattern in labor share in the last two decades. We modify the model to allow for a flexible technology structure and show that the degree of capital-skill complementarity is declining over time. The model with time-varying capital-skill complementarity can match the changes in skill premium and labor share in the 1963–2016 period.

The Decline in Capital-Skill Complementarity

We revisit the capital-skill complementarity hypothesis and examine whether and under what conditions this mechanism can explain the developments in wage inequality and labor share in the 1963–2016 period. Krusell, Ohanian, Rios-Rull, and Violante (2000) show that a model with capital-skill complementarity mechanism matches the data well and can account for the changes in wage inequality in the 1963–1992 period. We show that applying the model to the 1963–2016 period delivers a good i¬ t for the skill premium; however, it does not predict the declining pattern in labor share in the last two decades. We modify the model to allow for a i¬‚exible technology structure and show that the degree of capital-skill complementarity is declining over time. The model with time-varying capital-skill complementarity can match the changes in skill premium and labor share in the 1963–2016 period.

Sectoral allocation of foreign capital inflows and skilled‐unskilled wage inequality in a developing economy: A theoretical model

AbstractWe consider a small open developing economy using a 2 × 3 general equilibrium model with voluntary unemployment of skilled labor and involuntary unemployment of unskilled labor. It is assumed that there exists surplus unskilled labor in the developing economy and supply of skilled labor is a function of skilled wages. One sector is receiving foreign capital at the expense of another sector. We examined the impact of increasing total foreign capital inflows and sectoral allocation of foreign capital inflows on skilled‐unskilled wage inequality. Our findings suggest that wage inequality as well as employment of unskilled labor increases with increase in total foreign capital inflows, whereas wage inequality decreases with increase in foreign capital inflow into the low‐skilled sector with no change in total foreign capital inflows. Besides, it also indicates that the impact of increasing total foreign capital inflows along with changes in sectoral allocation of foreign capital inflows depends on a cutoff value which is a function of initial sectoral allocation of foreign capital into the two sectors. These results could be important for policymaking in the developing countries like India. Numerical examples have also been constructed to capture the extent of changes in wage inequality.

The equalizing spiral in early 21st century Brazil: a Kaleckian model with sectoral heterogeneity

The relative success of the Brazilian and other South American economies in combining higher growth rates with a reduction of income inequality in the 2000s can be better understood through the study of the relationship between wage distribution, consumption patterns and the composition of employment. By starting from the Neo-Kaleckian framework, this paper builds a two-sector open economy model with two types of workers, where changes in wage inequality can affect the output composition of the economy towards an increase in the non-tradable sector. Taking into account an endogenous response of the wage-share in the non-tradable sector to changes in the composition of employment, a reduction in wage inequality seems to have a stronger positive effect on non-tradable output, what may also exacerbate a possible side effect of this process: the deterioration of the trade balance.

Reconciling Changes in Wage Inequality with Changes in College Selectivity Using a Behavioral Model

We estimate a structural dynamic Roy model of education, labor supply and earnings on the 1979 and 1997 cohorts of males taken from the National Longitudinal Survey of Youth (NLSY) and evaluate to what extent changes in education and labor supply decisions across cohorts have been explained by changes in i) the college premium, ii) the utility of attending higher education, iii) grade progression standards, and iv) the value of non-market time. We quantify the evolution of the relative and absolute qualities of both college graduates and college attendants (associates). We find that it is impossible to rationalize changes in observed schooling decisions without appealing to a large increase in intrinsic taste for education, despite a doubling of the cost of college and its impact on debt-load. The population distribution of the college premium has shifted to the right, going from 50% to 58%, while the premium of actual college graduates has shifted to the left, going from 72% to 54%, thereby pointing toward a reduction of the relative quality of college graduates. The absolute quality (human capital) of college graduates has however remained stable. For college attendants (associates), both relative and absolute quality dropped. One implication of the relative flattening of age earnings profiles is the removal of the negative effect of late college graduation on early life-cycle wages. Our estimates indicate it moved from a 4% penalty per year of delay to an insignificant quantity by the early 2000's.

Wage dynamics in light of the structural changes in the labour market across four more economically developed countries of Europe

ABSTRACT This paper investigates the evolution of wages and wage inequality in four European countries during the economic crisis in light of important shifts in the occupational structure. Through recentered influence function regression for quantiles of European Union Survey on Income and Living Conditions data, this analysis links research on the primary forces of both wage and wage inequality to the decomposition of their changes between 2005 and 2013 into the composition effect and the wage structure. France and Germany show decreasing wage inequality despite having opposite changes in wages, whereas the United Kingdom and Italy show increasing wage inequality while maintaining opposite changes in wages. The wage structure has a greater influence on generating variation in the real salary, and the composition effect mostly explains the change in wage inequality with varying intensity throughout the distribution. Italy is the only country whose wage structure significantly contributes to wage inequality.

Occupations and the recent trends in wage inequality in Europe

We aim to contribute to a better understanding of the role that occupations played in recent trends in wage inequality in some European countries. Using EU-SILC data, we observe that most of the changes in wage inequality between 2005 and 2014 were the result of changes in the distribution of wages within occupations. A longer term approximation using data from the Luxembourg Income Study (LIS) shows similar patterns. We conclude that occupational dynamics did not drive recent trends in wage inequality in Europe.

Wage inequality in Bangladesh, 2000–2010: an unconditional quantile regression decomposition

ABSTRACT This paper reports on an investigation into changes in wage inequality in Bangladesh between 2000 and 2010, based on gender, marital status, education, job industry, job sector, location, etc. The 2000 and 2010 Labour Force Surveys conducted by the Bangladesh Bureau of Statistics (BBS) provided the data used. Oaxaca–Blinder’s (1973) decomposition and regression of the (recentered) influence function (RIF) model of Firpo–Fortin–Lemieux (FFL)’s (2007) decomposition were used to identify the important factors that caused wage inequality in Bangladesh. Both methods showed that the coefficient effect is the main contributor to the overall increase in wage inequality.

Recent trends in wage inequality from an EU perspective: a tale of two convergences

This paper presents an analysis of two processes of convergence between European countries, in wage levels and wage distributions, and the extent to which they explain recent trends in wage inequality for the EU as a whole. The results show that wage convergence was the main driver behind wage inequality trends for the EU as a whole in the last decade, which was significantly reduced prior to the crisis as a result of wage catch-up growth mainly in Eastern Europe, a process which was interrupted during the crisis but reactivated again in the most recent period. On the other hand, the contribution of within-country wage developments to explain changes in wage inequality for the EU as whole over the last decade was much more limited, although it is interesting to note as well a process of convergence in wage distributions between European countries towards intermediate inequality levels. Policies directed at reducing wage disparities within countries offer the best prospect to tackle wage inequalities both at the national and EU-wide level, as illustrated by the introduction of the German statutory minimum wage in 2015.

Wage Inequality During the Long-Term Stagnation in Japan: Changes Within and Between Establishments

Wage inequality between individuals has changed little in Japan in recent times unlike in other developed countries. We examine changes in wage inequality within and between establishments during the prolonged stagnation period in Japan. Using a micro-level worker–establishment dataset from 1991 to 2012, we find changes in inequality during the 1990s. First, an increase in the variance in the establishment fixed effects expanded men’s between-establishment inequality. Meanwhile, a reduction of returns to tenure decreased men’s within-establishment inequality and thus suppressed rising individual wage inequality. Second, we find a different trend in women’s wage inequality. Between-establishment inequality was larger than that of men in the early 1990s. However, since the structure of wage inequality in men changed significantly, the composition of inequality between men and women has become similar in recent years. Finally, the assortativeness between workers and establishment rose for both sexes.

Immigrant selection before and after communism

AbstractThe end of the Soviet Union and communist regimes throughout Eastern Europe led to sudden increases in emigration and large changes in wage inequality. This has provided a unique opportunity to understand how these changes altered incentives to emigrate during the transition period. In this paper, I analyze immigrant selection before and after the fall of the Soviet Union within a Roy Model framework, in which the relative return to skills determines the skill composition of immigrants. Using micro‐level data from Russia, Ukraine and Bulgaria, matched to Census data on immigrants from these countries in the United States, Spain and Greece in the post‐Soviet period, I find evidence of positive selection of immigrants in the US, and negative selection for Greece and Spain. Using retrospective data from Ukraine during the communist period, I find that selection among Soviet men in the US was intermediate and selection among women was positive.