Evolution Of Wage Inequality Research Articles

Gender gap correction: How can the evolution of wage inequality be explained?

Many European countries claim the struggle against wage inequality between men and women to be one of their priorities. Quantifying the real effects that should have been observed if such wage equalization was achieved remains to be done. A Shapley decomposition of the wage inequality allows to determine the a priori impact of a policy that removes the pay gap between men and women for a given age and education level. It also explains how interactions between personal characteristics lead to the obtained result. This economic policy tool is then illustrated with the wage distribution data of the French Labor Survey.

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.

Distributional effects of technological regime changes: hysteresis, concentration and inequality dynamics

In this paper, we study the effect of different types of technological regime changes on the evolution of industry concentration and wage inequality. Using a calibrated agent-based macroeconomic framework, the Eurace@Unibi model, we consider scenarios where the new regime is characterized by a finite time period of more frequent respectively more substantial changes in the frontier technology compared to the old regime. We show that under both scenarios, the regime change leads to an increase in the heterogeneity of productivity in the firm population and to increased market concentration, where effects are much less pronounced if the new regime differs from the old one with respect to the frequency of innovations. If the new regime is characterized by an increase of the size of the frontier jumps along the technological trajectory, the evolution of the wage inequality has an inverted U-shape with a large fraction of workers profiting in the very long run from high wages offered by dominant high-tech firms. Finally, it is shown that (observable) heterogeneity of worker skills plays an important role in generating these dynamic effects of technological regime changes.

Distributional Effects of Technological Regime Changes: Hysteresis, Concentration and Inequality Dynamics

In this paper we study the effect of different types of technological regime changes on the evolution of industry concentration and wage inequality. Using a calibrated agent-based macroeconomic framework, the Eurace@Unibi model, we consider scenarios where the new regime is characterized by more frequent respectively more substantial changes in the frontier technology compared to the old regime. We show that under both scenarios the regime change leads to an increase in the heterogeneity of productivity in the firm population and to increased market concentration, where effects are much less pronounced if the new regime differs from the old one with respect to the frequency of innovations. If the new regime is characterized by an increase of the size of the frontier jumps along the technological trajectory, the evolution of the wage inequality has an inverted U-shape with a large fraction of workers profiting in the very long run from high wages offered by dominant high-tech firms. Finally, it is shown that (oberservable) heterogeneity of worker skills plays an important role in generating these dynamic effects of technological regime changes.

Econometric Analysis of Returns to Education of Rural and Urban Labour Markets Workers in Tamil Nadu

The objective of this study was to empirically evaluate the returns to education of rural and urban labour markets workers in Tamil Nadu using the IHDS data with appropriate Econometric models. First, the present study estimated the earning functions of the rural and urban market's workers by OLS technique and standard Mincerian earning functions. Secondly, the quantile regression method was also used to examine the evolution of wage inequality. The findings of the study showed that the effects of education and experience on the log of hourly wages were positive, and these coefficients were statistically significant. The returns to education increased with the level of education and differed among the workers of rural and urban labour markets. The results showed that the rates of returns to primary, middle and higher secondary were higher in the urban market, whereas those of secondary and graduation were higher in the rural market. The study revealed that the effect of education was not the same across the rural and urban wage distribution. The rate of returns differed considerably within education groups across different quantiles of the wage distribution.

The 2011 break in the part-time indicator and the evolution of wage inequality in Germany

German social security records involve an indicator for part-time or full-time work. In 2011, the reporting procedure was changed suggesting that a fraction of worker recorded to be working full-time before the change were in fact part-time workers. This study develops a correction based on estimating the probability of being a part-time worker before and after the break. Using the correction, the paper confirms that the rise in wage inequality among full-time workers in West Germany until 2010 is not a spurious consequence of the misreporting of working time.

Twenty Years of Wage Inequality in Latin America

AbstractThis article documents an inverse U-shape in the evolution of wage inequality in Latin America since 1995, with a sharp reduction starting in 2002. The Gini coefficient of wages increased from 42 to 44 between 1995 and 2002 and declined to 39 by 2015. Between 2002 and 2015, the 90/10 log hourly earnings ratio decreased by 26 percent. The decline since 2002 was characterized by rising wages across the board, but especially at the bottom of the wage distribution in each country. Triggered by a rapid expansion of educational attainment, the wages of college and high school graduates fell relative to the wages of workers with only primary education. The premium for labor market experience also fell significantly. However, the compression of wages was not entirely driven by changes in the wage structure across skill groups. Two-thirds of the decline in the variance of wages took place within skill groups. Changes in the sectoral, occupational, and formal/informal composition of jobs matter for the process of reduction in inequality, but they do not fully account for the fall in within-skill variance. Evidence based on longitudinal matched employer-employee administrative data suggests that an important driver was falling wage dispersion across firms.

The 2011 Break in the Part-Time Indicator and the Evolution of Wage Inequality in Germany

German social security records involve an indicator for part-time or full-time work. In 2011, the reporting procedure was changed suggesting that a fraction of worker recorded to be working full-time before the change were in fact part-time workers. This study develops a correction based on estimating the probability of being a part-time worker before and after the break. Using the correction, the paper confirms that the rise in wage inequality among full-time workers in West Germany until 2010 is not a spurious consequence of the misreporting of working time.

The 2011 Break in the Part-Time Indicator and the Evolution of Wage Inequality in Germany

German social security records involve an indicator for part-time or full-time work. In 2011, the reporting procedure was changed suggesting that a fraction of worker recorded to be working full-time before the change were in fact part-time workers. This study develops a correction based on estimating the probability of being a part-time worker before and after the break. Using the correction, the paper confirms that the rise in wage inequality among full-time workers in West Germany until 2010 is not a spurious consequence of the misreporting of working time.

Collective Bargaining and the Evolution of Wage Inequality in Italy

AbstractItalian male wage inequality has increased at a relatively fast pace from the mid‐1980s until the early 2000s, while it has been persistently flat since then. We analyse this trend, focusing on the period of most rapid growth in pay dispersion. By accounting for worker and firm fixed effects, it is shown that workers' heterogeneity has been a major determinant of increased wage inequalities, while variability in firm wage policies has declined over time. We also show that the growth in pay dispersion has entirely occurred betweenlivelli di inquadramento, that is, job titles defined by national industry‐wide collective bargaining institutions, for which specific minimum wages apply. We conclude that the underlying market forces determining wage inequality have been largely channelled into the tight tracks set by the centralized system of industrial relations.

Offshoring and Wage Inequality: Theory and Evidence from China

We present a global production sharing model that integrates the organizational choices of offshoring into the determination of relative wages in developing countries. The model shows that offshoring through foreign direct investment contributes more prominently than arm's length outsourcing to the demand for skill in the South, thereby increasing the relative wage of skilled workers. We incorporate these theoretical results into an augmented Mincer earnings function and test the model based on a natural experiment in which China lifted its restrictions on foreign ownership for multinational companies upon its accession to the World Trade Organization in 2001. Empirical findings based on detailed Urban Household Surveys and trade data from Chinese customs provide support to our proposed theory, thus shedding light on the changes in firm ownership structure, the skill upgrading in exports, and the evolution of wage inequality from 1992 to 2008 in China's manufacturing sector.

Offshoring and Wage Inequality: Theory and Evidence from China

We present a global production sharing model that integrates the organizational choices of offshoring into the determination of relative wages in developing countries. The model shows that offshoring through foreign direct investment contributes more prominently than arm’s length outsourcing to the demand for skill in the South, thereby increasing the relative wage of skilled workers. We incorporate these theoretical results into an augmented Mincer earnings function and test the model based on a natural experiment in which China lifted its restrictions on foreign ownership for multinational companies upon its accession to the World Trade Organization in 2001. Empirical findings based on detailed Urban Household Surveys and trade data from Chinese customs provide support to our proposed theory, thus shedding light on the changes in firm ownership structure, the skill upgrading in exports, and the evolution of wage inequality from 1992 to 2008 in China’s manufacturing sector.

Collective Bargaining and the Evolution of Wage Inequality in Italy

In this paper we study the evolution of the Italian wage inequality, and of its determinants, using two decades of matched employer-employee data covering the entire population of private-sector workers and firms in the Veneto region. We find that wage inequality has increased since the mid-1980s at a relatively fast pace, and we decompose this trend by means of wage regression models that account for both worker and firm fixed effects. We show that the observed and unobserved heterogeneity of the workforce has been a major determinant of the overall wage dispersion and of its evolution. Instead, we find that the importance of the dispersion in firm-specific wage policies has declined over time. Finally, we show that the growth in wage dispersion has almost entirely occurred between job titles (livelli di inquadramento) for which a set of minimum wages is bargained at the nation-wide sectoral level. We conclude that, even in the presence of the underlying market forces, trends in wage inequality have been channelled through the rules set by the country's fairly centralized system of industrial relations.

Knowledge-Based Hierarchies: Using Organizations to Understand the Economy

Incorporating the decision of how to organize the acquisition, use, and communication of knowledge into economic models is essential to understand a wide variety of economic phenomena. We survey the literature that has used knowledge-based hierarchies to study issues such as the evolution of wage inequality, the growth and productivity of firms, economic development, and the gains from international trade, as well as offshoring and the formation of international production teams. We also review the nascent empirical literature that has, so far, confirmed the importance of organizational decisions and many of their more salient implications.

Dynamic analysis of wage inequality and creative destruction

This paper investigates the transitional dynamics of a basic Schumpeterian growth model under constant relative risk aversion. In this model, there are three patterns governing the evolution of wage inequality, but only if the intertemporal elasticity of substitution in consumption is sufficiently low: (a) skill-biased technological change, i.e., technological progress leads to a widening of wage inequality; (b) unskill-biased technological change, i.e., technological progress leads to a contraction of wage inequality; and (c) unbiased technological change, i.e., technological progress is independent of wage inequality. By conducting comparative dynamics of an unexpected permanent increase in research productivity in any sector, which we interpret as the arrival of new general purpose technologies, we show that the property of technological change shifts entirely from unskill-biased to skill-biased. The evolution of wage inequality in the model is then consistent with the shift in the trend in wage inequality beginning in the 1970s in the US economy.

Skills and the evolution of wage inequality

This paper studies wage inequality in the United States between 1980 and 2010 in a framework that accounts for changes in the employment of physical and cognitive skills and their returns. I find that the secular rise in the employment of cognitive skills is largely accounted for by labour force composition changes in shares of gender–education groups rather than changes that occur within these groups. Average employed skills differ greatly across groups, but over time their average employed cognitive skills have remained approximately constant. Returns to cognitive skills increased very sharply for high skill levels, more gradually around mean levels, and decreased at low levels. Returns to physical skills generally declined. These trends account for approximately 63% of the increase in the college wage premium, with changes in returns to cognitive skills playing a dominant role.

Economic Globalization, Wages and Wage Inequality in Tunisia: An ARDL Bounds Testing Approach

This article conducts an empirical investigation on the impact of economic globalization, that is, international trade and foreign direct investment (FDI), on the level and structure of real wages in Tunisia. In a first step, we look at the effects of economic globalization on the average real wage in the whole economy. Then, the same relationships are checked in manufacturing industries. In a second step, we assess the impacts of international trade and FDI on the evolution of wage inequality. To do this, the recently developed autoregressive distributed lag bounds testing approach to cointegration is conducted on annual data covering the period 1970–2009. This approach allows simultaneously investigating the long-run relationships as well as the short-run dynamic adjustments toward the equilibrium. Based on the econometric analysis, three main findings have been put forward. First, international trade positively affects the economy-wide average wage only in the long-run. On the contrary, FDI flows exert no effects. The second finding is that international trade and FDI positively affect only the most exporting industry in the country, that is, the textiles, clothing and leather industry. Finally, our results do not give support to the predictions of the Heckscher–Ohlin and Stolper–Samuelson theorem, since wefound weak empirical evidence that economic globalization reduces wage inequality between skilled and unskilled workers.

The evolution of wage inequality in Italy

This article analyses the evolution of inequality in yearly and daily wages between and within groups of blue and white collar, using the INPS-ISFOL database for the period 1985 to 1999 in Italy. Between-group inequality increased in the 1990s as clerical wages grew slowly, whereas blue collars' wages remained nearly constant. Within-group inequality increased only if measured by daily wages. The covariance structure analysis shows that inequality comes from persistent differentials among older workers and from high income volatility for younger cohorts. Within inequalities in office and manual workers are driven by the growth of permanency for the older cohorts (individual abilities, say experience, matter more) and by the growth of income volatility for the younger cohorts (luck in the labour market). Within each group, low paid workers during their career acquire earning gains for their abilities and reduce differentials with respect to high paid workers.

On the evolution of wage inequality in Acemoglu's model of directed technical change

In Acemoglu's model of directed technical change, the skill-premium increases in consequence of an increase in the relative supply of skilled labour. In this article, I argue that other measures of wage inequality such as the Gini-coefficient do not necessarily rise as well. The Gini-coefficient depends positively on the skill-premium, but the effect of an increase in the relative supply of skilled labour is ambiguous. A simulation of Acemoglu's model shows that the growth in the relative supply of skilled labour has led to increased wage inequality in the past, but will lead to decreasing wage inequality in the future.

Diverging Developments in Wage Inequality

This article investigates how a particular wage-bargaining institution mitigates pressures from growing international competition and new production techniques and affects the degree of wage inequality growth. The extent to which industry-wide wage minima (wage scales) cover both higher and lower skilled workers affects developments in inequality. A series of cross-sectional time-series analyses are conducted using data from a recent unpublished data set from the Organisation for Economic Co-operation and Development (OECD), which covers 14 OECD countries from 1980 to 2002. The results strongly indicate that the presence of industry-wide wage scales is a key factor in the evolution of wage inequality across OECD countries.