Demand-supply Framework Research Articles

Technological Change, Skill Demand, and Wage Inequality in Indonesia

This paper examines the empirical implications of technological changes for skill demand and wage inequality in Indonesia. According to the National Labor Force Survey of Indonesia, the share of educated workers and wage skill premium increased significantly over 2003-2009 for overall industry and across the region. An analysis based on demand-supply framework suggests that demand shifts favoring skilled workers during the period. The decomposition of labor demand shifts shows that they were driven not only by reallocation of labor forces between industries but also by change within industries, particularly among formal workers, suggesting evidence of skill-biased technological changes. The empirical evidence from the data of manufacturing firms suggest that diffusion of new technologies through imported materials and foreign direct investment caused greater demand for skilled labor and higher wage inequality in the manufacturing sector.

Role of Demand and Supply Shocks in Driving Inflation: Case Study of Pakistan

Generally, inflation refers to a reduction in purchasing power per unit of money and is considered a consequence of negative trends in monetary activity. As a number of factors may lead to inflation in an economy, this study attempts to measure the relative significance of structural shocks in explaining infiation. Monthly time series data is used on key macroeconomic variables of Pakistan from July 1992 to June 2011, and structural vector auto-regressions (SVAR) to understand the role ofsupply and demand shocks as key drivers of infiation. Long- run restrictions according to standard aggregate demand and aggregate supply framework are employed to identify structural shocks in the system. The results indicate that inflation follows a sluggish time path in response to supply shock as compared to demand shock of nominal nature. Specifically, around 75 percent oflong-run impact ofsupply shock on inflation is realized over a period of one year horizon as compared with 90 percent for demand shock. In terms of relative significance, supply side disturbances explain 48 percent of variation in inflation over the estimation period. Within demand side, nominal shocks are relatively more important than the real demand shock. The share ofreal demand shock was around 10 percent, while the reaming 42 percent was attributed to nominal shock. These results suggest that in addition to monetary factors, supply side disturbances should be taken into account for better understanding of and 'handle' on infiation in Pakistan.

Emigration and Wages in Source Countries: Evidence from Mexico

This paper empirically examines the effect on wages in Mexico of Mexican emigration to the United States, using data from the Mexican and United States censuses from 1970-2000. The main result in the paper is that emigration has a strong and positive effect on Mexican wages. There is also evidence for increasing wage inequality in Mexico due to emigration. Simple welfare calculations based on a labor demand-supply framework suggest that the aggregate welfare loss to Mexico due to emigration is small. However, there is a significant distributional impact between labor and other factors.

Emigration and Wages in Source Countries: Evidence From Mexico

This paper empirically examines the effect on wages in Mexico of Mexican emigration to the United States, using data from the Mexican and United States censuses from 1970-2000. The main result in the paper is that emigration has a strong and positive effect on Mexican wages. There is also evidence for increasing wage inequality in Mexico due to emigration. Simple welfare calculations based on a labor demand-supply framework suggest that the aggregate welfare loss to Mexico due to emigration is small. However, there is a significant distributional impact between labor and other factors.

Emigration and wages in source countries: Evidence from Mexico

This paper examines empirically the effect of Mexican emigration to the United States on wages in Mexico using data from the Mexican and US censuses from 1970 to 2000. The main result in the paper is that emigration has a strong and positive effect on Mexican wages. There is also evidence for increasing wage inequality in Mexico due to emigration. Simple welfare calculations based on a labor demand–supply framework suggest that the aggregate welfare loss to Mexico due to emigration is small. However, there is a significant distributional impact between labor and other factors.

Estimating the benefits of pollution reduction on agricultural yields: Taiwan's air pollution emission fees program

Taiwan's implementation of the 1997 Air Pollution Emissions Fees Program will conceivably lead to long-term reductions in pollution emissions. The purpose of this paper is to estimate the benefits to Taiwan from the expected reduction in crop losses as a direct result of such a decrease in air pollution. We employ a demand–supply framework for rice production to estimate the change in social welfare resulting from changes in the concentration of certain pollutants in the atmosphere. Our empirical results show that, in the year 1997, social welfare increments resulting from the decline in sulfur dioxide concentrations in the atmosphere ranged between US$ 946,200 and US$ 2,435,800. Meanwhile, during the same period, the increase in social welfare due to the decline in the ozone concentration in the atmosphere ranged between US$ 838,100 and US$ 1,927,000. The average benefit from the reduction in both sulfur dioxide and ozone concentrations is calculated to be between US$ 2.67 and US$ 6.86 per acre (for sulfur dioxide), and from US$ 2.36 to US$ 5.43 per acre (for ozone).

The Economics of Tipping: Tips, Profits and the Market's Demand—Supply Equilibrium

Research indicates that the size of a tip is rarely correlated with the quality of the service rendered. These findings empirically refute the widely accepted economic argument that tipping is an efficient quality-control mechanism. This study provides an alternative explanation to the existence of tipping. It develops a microeconomics tipping model and demonstrates that tips affect the firm's profitability through changes in the market's demand–supply equilibrium when consumer segments differ in their demand functions and their propensity to tip. This demand–supply framework can serve as a useful tool for managers who wish to select an appropriate tipping policy for their firms.

New agricultural technology, timeliness and wages for labour: a longitudinal study of rural wages in India

While there is widespread agreement that the spread of new technology crops in India since the mid-1960s has affected rural wages, there is considerable disagreement over the nature of this effect. The existing literature has posed this problem in a demand–supply framework – with a rise in agricultural wages ascribed to increased labour demand caused by this technology change, and stagnant or falling wages attributed to labour supply growth outstripping labour demand. In this paper we reconsider this issue in a modified framework. Within a competitive demand–supply framework we add another aspect of production technology that is idiosyncratic to agriculture, namely, sensitivity of yields to timing of farm operations (say, planting date). It is common knowledge that mistiming can cause substantial yield loss. In a competitive labour market this causes greater impatience on the farmers' part. They are willing to pay a higher wage rather than risk loss of yield. As newer technology crops tend to be more time sensitive, this puts an upward pressure on wages. In this paper we test this hypothesis using annual state-level data from India for the period 1970–85. Delineating the demand-supply effect of new technology on wages from that of the timeliness effect, we indeed find supportive evidence for the above hypothesis.

Household Formation in Developed Societies

A variety of demographic phenomena common to developed societies (e.g. declining fertility rising divorce rising proportions living alone) are viewed as part of a general trend toward separate living and smaller households and as different forms of an underlying coresidential decision-behavioral answers to the question With whom shall I live? Household status is seen as a composite good and is discussed in terms of a demand-supply framework. Nine specific hypotheses to explain the trend toward separate living are discussed within this framework. (SUMMARY IN FRE AND SPA) (EXCERPT)

Population Age Structure and the Size of Social Security

"This paper uses a general overlapping generations model to analyze social security. Rather than focusing on intertemporal price and income considerations, however, the paper focuses on the effect of contemporaneous (same period) prices and income. The analysis shows that the old-age dependency ratio acts as a shadow price for old-age benefits. With this new shadow price, the equilibrium price and quantity of social security benefits and the level of the payroll tax rate are determined in a demand-supply framework with individual utility maximization. Three explicit demand functions (intergenerational contracts) are analyzed. The model is tested using [U.S.] time series data for the social security Old-Age and Survivors (OASI) program."

Capacities, Opportunities and Educational Investments: The Case of the High School Dropout

N his well-known review of the human capital approach to the study of income distribution Jacob Mincer makes the point that . . a better understanding of the relation between and earnings requires an understanding of the factors determining investment (1970, p. 18). The importance of this point has been lost somewhat in the past few years with the plethora of empirical examinations of the relationship between years of schooling (as the measure of human capital investment) and earnings. Nevertheless, it is clear that if schooling is itself the result of optimizing rather than random behavior, the typical earnings regression will overstate the contribution of schooling to earnings. A simple model that explains interpersonal differences in investments in formal schooling has been developed by Becker (1967, 1975) with more formal extensions of this model having been presented by Ben-Porath (1967) and Wallace and Ihnen (1975). Basically, Becker's model views the individual as maximizing the present value of his net earnings over the life cycle by investing in formal schooling up to the point at which the marginal rate of return from the equals the marginal financing costs. This may, in turn, be expressed in a conventional demand-supply framework. The demand for schooling is the product of two factors: the expectation of returns from a particular. level of schooling achievement and the probability that the particular individual will in fact succeed in attaining this level.' The first factor is largely determined by the exogenous forces of the labor market where individual differences arise because of imperfect knowledge. The second is largely a function of individual'capacities (ability), the schooling environment, and the extent to which the individual believes the schooling environment and curriculum will actually lead to an increase in his stock of human capital. The supply side of the model reflects the opportunity for which is determined, in large part, by the availability of financing funds. For youths enrolled in high school the major economic decision they face is whether to continue with the formal educational process. The primary alternatives to schooling are full-time participation in the labor force, service in the Armed Forces, marriage and work within the household. The data indicate that these alternatives are chosen, in varying degrees to the extent that only 75% of a schooling cohort that entered the fifth grade in 1964 graduated from high school in 1972 (U.S. Department of HEW, 1974, p. 14). A sizable proportion of young adults, therefore, terminate their educational before the completion of high school. This decision to drop out of high school has seemed to arouse considerable public and private concern. While there is now some evidence and concern regarding an overinvestment in college training (Freeman, 1975), the fact that young people drop out of high school usually raises the spectre of increased crime, drug usage, unemployment and a general alienation of youth from the adult community. The public result of this. concern has been a variety of dropout prevention programs which have been supported under Title VIII of the Elementary and Secondary Education Act together with a provision' of the Vocational Education Act. which directs Federal monies to areas of high need, including local areas with a high concentration of school dropouts. A variety of instructional methods have been supported in the dropReceived for publication May 9, 1977. Revision accepted for publication February 15, 1978. * University of South Carolina. The research reported herewas supported by the Office of the Assistant Secretary for Planning and Evaluation, Department of Health, Education and Welfare. That support, together with the comments of Caroline Clotfelter, Susan Cochrane, Elchanan Cohn, Linda Edwards, Robert Hauser and two anonymous referees, is gratefully acknowledged. The computational assistance of Jane Lee was also of great help. The conclusions expressed here do not necessarily reflect the position of the sponsoring agency. I This useful distinction is taken from Griliches (1973).