Explaining Wage Inequality Research Articles

Vanishing social classes? Facts and figures of the Italian labour market

This paper analyses medium-term labour market trends from 1983 to 2018 in Italy relying on the “Rilevazione dei contratti di lavoro” from INPS archive which provides information on average salaries by professional category, age, gender, and geographical origin. Within an overall pattern of exacerbated wage inequalities, documented by means of different indicators, the empirical analysis highlights how the within-component of the wage variation prevails in the gender, age and geographical dimensions. By contrast, the between-component in terms of professional categories (trainees, blue-collar jobs, white-collar jobs, middle managers, executives) is the only between-variation attribute to prevail, corroborating the role played by a reduced class schema, excluding capitalists and the self-employed, in explaining wage inequality. Regression-based inequality estimations confirm the role played by managerial remuneration, the contradictory located class, in driving divergent patterns. Stratification of wage losses is recorded to be largely concentrated among blue-collar professional categories, women, youth, and in Southern regions.

Factores condicionantes y dependencia espacial en el grado de concentración salarial en España

En los últimos años, el desigual reparto salarial en España parece preocupar cada vez más. Tratando de contribuir a la literatura existente hasta el momento, en este artículo se analizará el impacto que tienen las características personales y laborales del trabajador y las de la empresa en la distribución de los salarios. El análisis se ha llevado a cabo a partir de los últimos micro-datos oficiales disponibles sobre salarios, correspondientes a la Encuesta de Estructura Salarial del año 2010 en las 52 provincias españolas. Utilizando los últimos desarrollos de datos de paneles espaciales, se analiza la posible dependencia espacial y las diferentes alternativas de especificación. Los resultados muestran que el modelo SLX, con efectos fijos, es adecuado para explicar la desigualdad salarial.

Occupational closure and wages in Norway

Recent literature has pointed to occupational closure in order to explain wage inequality between occupations. The basic argument of occupational closure is that average occupational wages are higher in closed occupations because these occupations are better able to establish and maintain institutional barriers to access. In this study we analyse occupational closure and its wage effects in Norway by matching newly gathered occupational data on four different closure institutions (licensure, certifications, unionization, and educational credentials) to register data. The results show strong wage effects of licensure and unionization, net of occupational skill requirements. Our analyses furthermore show substantial differences in the returns to occupational closure across social classes: licensure is especially beneficial for higher classes, whereas unionization generates rents for lower classes, implying that occupational closure affects social inequality in Norway.

Could immigration explain wage inequality in a skill-biased technological model?

The aim of this paper is to evaluate how immigration of high-skilled workers affects the technological-knowledge bias and, in turn, the skill premium in the host countries, in particular bearing in mind the recent experience in a number of European countries. We study a skill-biased dynamic general equilibrium R&D growth model in which the standard R&D technology is modified so wage inequality results from the direction of the technological knowledge, which in turn is induced by the price channel. By solving the transitional dynamics numerically, we show that the rise of the skill premium arises from the price-channel effect, complemented with a mechanism that reflects the impact of immigration on R&D. According to our quantitative results, our model is able to account for a significant proportion of the dynamics of the skill premium in the data for a number of European countries, thus, suggesting that differences in labour skills between immigrants and natives are, in practice, an important source of skill premium variation over time.

Wage inequality in Turkey, 2002–10

AbstractThis paper studies the evolution of wage inequality in Turkey using household labour force survey data from 2002 to 2010. Between 2002 and 2004, the relative supply of more‐educated workers to less‐educated workers remained constant while their relative wages decreased in favour of less‐educated workers. However, between 2004 and 2010, the relative supply of more‐educated workers to less‐educated workers rose, while their relative wages remained constant or kept increasing in favour of more‐educated workers. This suggests factors other than those implied by a simple supply‐demand model are involved, such as skill‐biased technical change or minimum wage variations. The decomposition of wage inequality reveals that the price (wage) effect dominates the composition effect particularly in the first period. Our results show that the real minimum wage hike in 2004 corresponds to a major institutional change, which proved to be welfare‐increasing in terms of wage inequality. The upper‐tail (90/50) wage inequality decreased between 2002 and 2004 and stayed constant thereafter, whereas the lower‐tail (50/10) wage inequality decreased throughout the period. Our findings thus provide evidence supporting the institutional argument for explaining wage inequality.

A DUAL DEFINITION FOR THE FACTOR CONTENT OF TRADE AND ITS EFFECT ON FACTOR REWARDS IN US MANUFACTURING SECTOR

We introduce a dual definition of the Factor Content of Trade (FCT) using the concept of the Equivalent Autarky Equilibrium. Estimating a symmetric normalized quadratic revenue function for the U.S. manufacturing sector between 1965 and 1991, we find that the FCT for capital is positive, while the FCT for skilled and unskilled labor is negative, suggesting that the Leontief Paradox is not present. Then the growth rate of the factor rewards is decomposed to the FCT, endowments, and technological change effects. We find that technological change is the most important determinant in explaining wage inequality between skilled and unskilled labor. (JEL F11, F16, J31)

The Role of Intangible Capital in Explaining Wage Inequality Between Skilled and Unskilled Workers

Trade liberalization and technological improvement have made the movement of intangible capital feasible. Once the accumulated tangible capital reaches a certain level, its lower unit cost will attract the inflow of intangible capital, which will demand higher-skilled-workers. This paper analyzes the role of intangible capital in raising the wages for skilled workers in both developed and developing countries. Drawing on the outsource model by Feenstra, we develop an expanded model with four rather than three inputs: skilled and unskilled labour, and tangible and intangible capital. A production function, a long-run cost function, and a unit-cost function for the final good are derived to illustrate theoretically that the flow of intangible capital can be one source of the wage inequality for both developing and developed countries.

A Dual Definition for the Factor Content of Trade and its Effect on Factor Rewards in US Manufacturing Sector

In this paper, first we introduce a dual definition of the Factor Content of Trade (FCT) using the concept of the equivalent autarky equilibrium. A FCT vector is calculated by estimating a symmetric normalized quadratic revenue function for the US manufacturing sector for the period 1965 to 1991. The FCT for capital is positive, while the FCT for skilled and unskilled labor are both negative, suggesting that the Leontief Paradox was not present for the period of investigation. Capital is revealed by trade to be relatively more abundant compared to either type of labor, while skilled labor is relatively more abundant than unskilled labor. Then using the quadratic approximation lemma, the growth rate of the factor rewards is related to the growth rate of FCT, the growth rate of endowments and technological change. We find that technological change is the most important determinant in explaining wage inequality between skilled and unskilled workers in US manufacturing between 1967 and 1991.

Does Job Displacement Explain Wage Inequality: A Nonparametric Examination

We examine the effect of job displacement on changes in the wage structure using nonparametric estimation methods. We argue that job displacement is a plausible mechanism that transmits causes such as skill-biased technological change or deindustrialization to changes in the wage structure. Employing a combination of data from the January and Outgoing Rotation Groups of the Current Population Survey, we compare the distribution of earnings prior to and after worker displacement. Although the conventional wisdom argues for a strong connection between worker displacement and changes in the wage structure, we find limited effects of displacement on the wage distribution.

Goods market responses to trade shocks and trade and wages decompositions

Abstract. Trade and wages literature asks whether trade or technology has been the major factor behind increases in wage inequality in OECD countries since the 1980s. In this literature, little attention has been paid to how goods market responses to trade shocks affect conclusions. Using an Armington heterogeneous goods trade model we capture demand side effects, and show how trade shocks affecting the price of unskilled‐intensive importable goods can be absorbed on the demand side of goods markets, with little or no impact on relative wage rates. No wage impact occurs if the elasticity of substitution in preferences between imports and import substitutes is one. As this elasticity increases, trade plays an ever larger role in explaining wage inequality changes, and as the elasticity goes below one the sign of the effect changes. We present some results of general equilibrium decompositions of total wage change into trade and technology components using UK data. We suggest that since many import demand elasticity estimates are in the neighbourhood of one, there is a prima facie case that goods market considerations further lower the significance of trade as an explanation of recent trends in OECD wage inequality beyond that claimed in the literature.

Explaining Wage Inequality in Chile: Does Education Really Matter?

This paper decomposes wage inequality in Chile over the period 1958-1996. The evidence shows that education accounts for more than 38% of wage inequality. In addition, the return to education explains close to 80% of education's contribution. Finally, a higher convex pattern is observed in the returns to schooling over time. Thus, the importance of university education in the contribution of schooling to inequality has been increasing in the last decades. Therefore, policies aimed at providing access to higher education to poor individuals are not only expected to generate higher earnings, but also lower levels of inequality.

Education, cost of living and regional wage inequality in Brazil

The objective of this article is to analyze wage inequality among the 10 largest metropolitan regions in Brazil in the 1990s. We assess the extent to which worker characteristics (education, age, gender, race, position in the family) and job characteristics (occupational position, sector, experience) can explain wage inequality. The analysis is made both with regional-nominal and with regional-real wage data. In the second case regional price indexes are used to control for differences in cost of living among regions. Wage differentials in Brazil were slightly lowered when control variables were introduced, but the leftover inequality remained high. The results indicate that cost of living levels do have a role in explaining wage inequality in Brazil, but even after controlling for this factor, the remaining regional differentials are still important.

Knowledge Spillovers and Wage Inequality: An Empirical Analysis of Dutch Manufacturing

The introduction of new technologies and technical change is associated mainly with high‐skilled and high‐wage workers. In addition, many studies have found a positive correlation between the introduction of new technologies and technical change and skill upgrading. In these studies no attention has been paid to spillovers from one sector to the other. In this paper we not only use measures of technical change but also knowledge spillovers to explain wage inequality in Dutch manufacturing in the period 1986–95. Using this more elaborate measure of technical change, our findings are twofold. First, we confirm that workers employed in knowledge‐intensive manufacturing sectors receive a higher wage than workers in less knowledge‐intensive sectors. Secondly, the wages paid to high‐skilled workers relative to low‐skilled workers in knowledge‐intensive sectors are higher than those in less knowledge‐intensive sectors. However, the coefficients using the elaborate measure of technological advancement are much lower and sometimes even insignificant. This suggests a premium for high‐skilled labour in sectors both applying and developing technology. But the wage premium is highest in technology‐developing sectors, as suggested by the measures used in previous studies.

Explaining Wage Inequality in Telecommunications Services: Customer Segmentation, Human Resource Practices, and Union Decline

This study examines factors related to within-occupation wage inequality among service and sales workers in the telecommunications industry. The author draws on a 1998 survey of a nationally representative sample of 354 service and sales centers in the industry to examine the importance of management practices and union institutions in shaping wage variation. The results strongly indicate that business strategies of customer segmentation and human resource practices explain variation in wages over and above that explained by the human capital of the work force. In addition, despite extensive deregulation and de-unionization of the industry, the union wage premium is 22%.

Explaining Wage Inequality in Telecommunications Services: Customer Segmentation, Human Resource Practices, and Union Decline

This study examines factors related to within-occupation wage inequality among service and sales workers in the telecommunications industry. The author draws on a 1998 survey of a nationally representative sample of 354 service and sales centers in the industry to examine the importance of management practices and union institutions in shaping wage variation. The results strongly indicate that business strategies of customer segmentation and human resource practices explain variation in wages over and above that explained by the human capital of the work force. In addition, despite extensive deregulation and deunionization of the industry, the union wage premium is 22%.

The signalling power of education by size of firm and the long‐term effects on workers’ careers

The paper seeks to separate the signalling effect of education on first entry into the labour market and the long‐term influence of its human capital component on earnings. It is claimed that large firms attach more importance than small ones to the signalling component of education. Thus it is assumed, first, that highly educated young people are more likely to be recruited by a large company. Second, size of firm at first job is likely to some extent to be predictive of earnings patterns and career opportunities. Lastly, it is assumed that returns to professional experience and education are likely to be more subject to erosion in large firms than in small ones once the influence of education on the first appointment has been taken into account. In order to test these hypotheses, a multinomial Logit selection model is estimated. The findings are widely consistent with the hypotheses and support the idea that the signalling impact of education is stronger in large firms than in small ones, which might explain wage inequality among workers endowed with the same amount of education.

Immigrant wages in The Netherlands: The valuation of pre- and postimmigration human capital

This article presents an empirical analysis of the wages of male immigrants from The Netherlands Antilles, Surinam, Turkey and Morocco living in The Netherlands. The principal findings of the study are the following. Educational attainment before and after immigration is equally productive for the Antilleans and the Surinamese only. Among Mediterraneans, only Dutch school years of Moroccans exert significant wage effects. The Dutch labour market rewards experience accumulated after immigration at a higher rate than foreign experience. Of the differences in observed characteristics, that in the number of Dutch school years is most important in explaining wage inequality across immigrant groups.