Immobile Labor Research Articles

Why is There No Race to the Bottom in Capital Taxation?

This article explains the absence of a race to the bottom in capital taxation by analyzing fiscal competition under budget rigidities and tax equity constraints (fairness norms). We outline a political economic model of tax competition that treats the outcome of tax competition as one argument in the governments utility function, the others being public expenditure and tax equity. In accordance with previous theoretical research, tax competition tends to cause a reduction in taxes on mobile capital and an increase in the tax rates on relatively immobile labor in our model. Yet, our model predicts that governments do not fully abolish taxes on mobile capital. Instead, the government being least restricted by budget constraints and equity norms cuts tax rates to levels slightly below the lowest tax rates of those countries, in which governments are more constrained, where effective constraints are country size, budget rigidities and fairness norms. Analyzing data from 23 Organization for Economic Co-operation and Development countries between 1975 and 2004 we find empirical support for the hypotheses derived from our theoretical model.

Inter-provincial migration and inequality during Vietnam's transition

Vietnam's economic boom during the transition to a market economy has centered on very rapid growth in some sectors and provinces, yet poverty has diminished across the entire country. With capital investments highly concentrated by province and sector, geographic labor mobility may be critical in spreading the gains from growth. Conversely, rising income inequality may be attributable in part to impediments to migration. We first use census data to investigate migration patterns and determinants. We then examine the role of migration as an influence on income ratios between pairs of provinces. The former analysis robustly confirms economic motives for migration but also suggests the existence of poverty-related labor immobility at the provincial level. Examination of income ratios between pairs of provinces reveals that the impact of migration on inequality can be either negative or positive. A robust inequality-reducing impact of migration is found for migration flows into provinces where most of Vietnam's trade-oriented industrial investments are located.

Europeanization or globalization? Transnational wage bargaining and the distribution of activity in European labor markets

This paper investigates the impact of globalization on labor markets, in terms of wage inflation and the distribution of activity across regions. Specifically, we study the effects of aggregation in the labor markets on the distribution of employment and inflation pressures, where there are differences in market structures and transmission mechanisms underpinned by relatively immobile labor. To demonstrate these ideas, we take the European experience as a “laboratory” to show what can be expected from globalization in the labor markets in practice. Using models of wage leadership vs. locational competition, we examine the extent and strength of aggregation effects on labor market costs using a sample of data from 1983 to 2007 which covers the period of the creation of the Euro. We find that the aggregation effect has decreased significantly since the start of EMU, improving the trade-off between inflation and unemployment. At the same time, while Germany played an important role in the run-up to EMU in terms of wage leader, its role has now decreased and been replaced by globalization forces. This implies increased locational competition in terms of wage formation. We demonstrate this with the emerging role of the US as the benchmark for wage setting in Europe.

A relationship between current globalisation, unemployment, inequality and poverty

PurposeThis paper contends that there is a positive relationship between current globalisation, unemployment, inequality and poverty, which paves a vista for further academic discourse.Design/methodology/approachAs a meta‐analytical study, the paper relied on secondary data. It is a qualitative study, which is based on conceptual analysis, theory building and “emic” perspective (authors' viewpoint).FindingsA relationship between current globalisation, unemployment, inequality and poverty should be investigated further. Unemployment increases levels of inequality and poverty within society. Although bequeathed with various names and definitions, the logics of current globalisation seem to have exacerbated the problem of global unemployment, the corollary of which is endemic inequality and poverty.Practical implicationsIncreases in income inequality and poverty over the past decades, can be attributed to globalisation. Therefore, within the domain of unemployment, inequality and poverty in the era of globalisation, renewed problems of global competition, job termination, wage reductions, labour immobility and technological displacement of workers, have accelerated the rate of global unemployment, the corollary of which is endemic inequality and poverty.Originality/valueThe originality of this paper is that it examines the phenomenon of globalisation, unemployment, inequality and poverty, from a different perspective, which creates an opportunity for further constructive debate.

Globalization and the Marginalization of Unskilled Labor: Potential Impacts on Health in Developed Nations

The objective of this investigation was to determine the impacts of economic globalization on labor markets and outline potential pathways for these changes to affect health status in industrialized nations. A systematic review of the economic globalization and health literature revealed that, under the impact of globalization and market deregulation, the past 25 years have witnessed de-industrialization, shifts to nontraditional, insecure work arrangements, and relatively high levels of unemployment in most developed nations. This has occurred in the context of hypermobility of capital, relative immobility of labor, and declining market position for unskilled labor. Such structural changes in the labor markets in conjunction with shifts in educational opportunities and requirements have resulted in the increasing marginalization of unskilled workers from the labor market. Aside from direct effects on health due to the threat and experience of unemployment, and given that income inequality within nations is a main driver of national health status, lowered relative wages for the unskilled will probably affect national health status through increased income inequality.

Labour Tax Policies and Strategic Offshoring under Unionised Oligopoly

In a model with a unionised immobile labour force we analyse how labour taxes and transfers towards unemployed workers are optimally cho- sen when a welfare maximising government faces oligopolistic and partly mobile firms. We consider two polar types of government: one whose objective consists of maximising the sum of domestic producer's and con- sumers' surplus and one that aims at maximising employed and unem- ployed workers' payoffs. We show that depending on the combination of foreign labour costs, the degree of domestic union bargaining power, and the sunk costs of relocation, the former type of government may choose to set taxes so as to induce an outward relocation of production. (author's abstract)

Corporate Investment, Taxation, and Tobin's Q: Evidence from Japanese Firms and Industries

The paper addresses a question of how taxation affects the cost of capital of firms and the value of firms as measured by Tobin's q. We construct a type of Real Business Cycle model and derive our original unlevered q on an after tax base after removing the financial tax shield effects in order to clearly distinguish between the real operating profitability of firms and their financing decisions. Our model is an extended version of the two-sector model originally developed by Christiano and Fisher (1995) and can incorporate both corporate taxation and individual taxation. In our model both homogenous expectations in the capital market and labor immobility are assumed as in Christiano and Fisher and the unlevered q-value is derived from our partial equilibrium solutions. Some comparative static results are demonstrated and model predictions are presented. In a latter empirical part of our paper, we investigate how the unlevered after-tax q-values versus the conventional Tobin's q vary between the two business sectors in Japan according to the differences in the marginal tax rates and the leverage ratios of firms as well as over the different phases of business cycles. Overall, the data supports the model predictions and rationalizes the use of our unlevered q.

Fighting Tax Competition in the Presence of Unemployment: Complete versus Partial Tax Coordination

Fighting Tax Competition in the Presence of Unemployment: Complete versus Partial Tax Coordination, 10.1628/001522108X312069, Jahrgang 64 (2008) / Heft 1, 0015-2218 (1614-0974), Public Finance Analysis

Interprovincial Migration and Inequality During Vietnam's Transition

Vietnam's economic boom during the transition to a market economy has centered on very rapid growth in some sectors and some provinces, yet poverty has diminished across the entire country. With capital investments highly concentrated by province and sector, geographic labor mobility may be critical in spreading the gains from growth. Conversely, rising income inequality may be attributable in part to impediments to migration. We first use census data to investigate migration patterns and determinants. We then examine the role of migration as an influence on cross-province income differentials. The former analysis robustly confirms economic motives for migration but also suggests the existence of poverty-related labor immobility at the provincial level. Examination of income differentials between pairs of provinces reveals that the impact of migration on inequality can be either negative or positive. A robust inequality-reducing impact of migration is found for migration flows into provinces where most of Vietnam's trade-oriented industrial investments are located.

The Costs of Risk: Examining the Missing Link between Globalization and Social Spending

Globalization is often credited with the expansion of the welfare state and increased spending on social insurance programs. However, empirical evidence on the relationship between globalization and social welfare spending is mixed. One possible explanation for these mixed results might be country-specific factors that mediate the effect of globalization on social spending, such as key characteristics of a country's labor market. Countries with fluid, flexible labor markets likely respond to globalization differently than countries with rigid, inflexible markets. At the micro level, workers who find it costly to adjust to market volatility will likely demand compensatory and insurance programs to offset the high costs of adjustment. Given this, the relationship between globalization and social insurance is likely to be more sharply positive among countries with relatively immobile labor. I test this argument using data on social expenditures in both developed and developing countries. The findings indicate that trade exposure increases social spending in countries where workers face high adjustment costs. When workers face low adjustment costs, trade exposure has a strong reductive effect on social spending. This reductive effect declines as adjustment costs increase.

Coordination of capital taxation among asymmetric countries

This paper studies international fiscal coordination in a world of integrated markets and sovereign national governments. Mobile capital and immobile labor are taxed in order to finance a fixed budget. This generates productive inefficiency. Two fiscal reforms are considered: a minimum capital tax level and a tax range, i.e., a minimum plus a maximum capital tax level. It is shown that the introduction of a lower bound to the capital tax level is never preferred to fiscal competition by all countries while there always exists a combination of both a lower and an upper bound (i.e., a tax range) which is unanimously accepted.

Migration and Foreign Direct Investment in the Globalization Context: The Case of a Small Open Economy

The main objective of the paper is to establish the link between the exogenous migration shocks and endogenous foreign direct investment flows in a small open economy setting with international capital mobility, immobile labour and a non-traded good. I find that the immigration of the high-skilled individuals and FDI flows are always complements in the quantity sense. The immigration of the low-skilled individuals will cause an outflow (inflow) of capital, if domestic non-traded and imported goods are relatively weak (strong) substitutes in consumption. Besides, I explain the attitudes of native individuals towards high-skilled and low-skilled immigrants.

Before and After the EMU: Financial Integration, Monetary Policy and Welfare Changes

This paper studies the welfare impact of a common monetary policy in the context of a two-country, general equilibrium model with liquidity effect and nominal wage contracts, heterogeneous agents, imperfect competition in the labor market, trade in goods, immobility of labor and mobility of capital. Considering different types of shocks, agents are in general better off under the single currency regime, aside from predominantly technological and idiosyncratic shocks for which they prefer the national currencies regime with a floating exchange rate. I also find the welfare gains of the monetary policy to be smaller under the single currency.

Globalisation and the Future of the Corporate Income Tax

Concerns have been expressed that, in an era of high capital mobility, international tax competition will lead to an inexorable decline in taxes levied on capital, shifting the tax burden to the relative immobile inputs, labour, and land. Some view this as a threat to the financial and political underpinnings of the welfare state, which is based on the redistribution of income. On the other hand, as Mintz (1992) pointed out, with globalisation there may be more opportunities to shift the burden of taxation to foreigners, especially if other governments provide foreign tax credit, because globalisation may increase the share of the assets in the economy that are owned by foreigners. In this paper, I develop some analytical models to determine how these offsetting forces will affect the optimal rates of capital taxation in a small open economy.

European Labour Mobility: Challenges and Potentials

European Union economies are pressed by (i) a demographic change that induces population ageing and a decline of the workforce, and (ii) a split labour market that is characterized by high levels of unemployment for low-skilled people and a simultaneous shortage of skilled workers. This lack of flexible high-skilled workers and the aging process has created the image of an immobile labour force and the eurosklerosis phenomenon. In such a situation, an economically motivated immigration policy at the European level can generate welfare improvements. A selective policy that discourages unskilled migrants and attracts skilled foreign workers will vitalize the labour market, foster growth and increase demand for unskilled native workers. The paper summarizes the available economic insights, and suggests (i) the need to harmonize the single-country migration policies across Europe and (ii) that the European Union needs to become an active player on the international labour markets by providing competitive institutional settings for European companies.

Tax Competition under Budget Rigidities and Fairness Norms

This paper analyzes fiscal competition under budget rigidities and tax equity (fairness norms). We outline a numerically solvable political economic model that treats the outcome of tax competition as one argument in the governments utility function, the others being public expenditure and tax equity. In accordance with theoretical research, we demonstrate that tax competition tends to reduce taxes on mobile capital while increasing the tax rates on relatively immobile labor. However, taxes on mobile capital do not vanish in equilibrium. Instead, the government being least restricted by budget constraints and equity norms reduces tax rates slightly below the lowest tax rates of those countries, in which governments are more constrained. Analyzing data from 21 OECD countries between 1965 and 2000 we find empirical support for the hypotheses derived from our theoretical model.

Taxation under Formula Apportionment—Tax Competition, Tax Incidence, and the Choice of Apportionment Factors

This paper analyzes tax competition for mobile capital among jurisdictions where capital is employed by the subsidiaries of a unitary firm. Equity capital of the unitary firm is taxed under a formula apportionment scheme, and each jurisdiction has the leeway to choose its desired mix of apportionment factors. The analysis reveals that jurisdictions decide for the use of immobile resources like immobile labor (payroll) as the only apportionment factor. The unitary firm shifts the tax burden to the owners of immobile resources. There is in fact no tax competition among jurisdictions, and the supply of local public goods is not distorted.

European Labour Mobility: Challenges and Potentials

European Union economies are pressed by (i) a demographic change that induces population ageing and a decline of the workforce, and (ii) a split labour market that is characterized by high levels of unemployment for low -skilled people and a simultaneous shortage of skilled workers. This lack of flexible high-skilled workers and the aging process has created the image of an immobile labour force and the eurosklerosis phenomenon. In such a situation, an economically motivated immigration policy at the European level can generate welfare improvements. A selective policy that discourages unskilled migrants and attracts skilled foreign workers will vitalize the labour market, foster growth and increase demand for unskilled native workers. The paper summarizes the available economic insights, and suggests (i) the need to harmonize the single -country migration policies across Europe and (ii) that the European Union needs to become an active player on the international labour markets.

Tax competition and the choice of tax structure in a majority voting model

This note studies the choice of tax structure in a majority voting model with tax competition. Regions may tax mobile capital or immobile labor. Individuals differ with respect to their relative endowments of labor and capital. Even though a lump sum tax is available, the equilibrium capital tax in a jurisdiction may be positive. In a symmetric equilibrium, this will be true if the median capital endowment is smaller than average.

Labour Market Reform in China (review)

Reviewed by: Labour Market Reform in China Sarah Cook (bio) Xin Meng. Labour Market Reform in China. Cambridge: Cambridge University Press, 2000. 238 pp. Hardcover £45.00/$69.95, ISBN 0-521-77126-9. This book examines the main institutional changes in China's labor market during the first two decades of economic reform. It presents a series of analyses of key components of China's segmented labor market—the rural, urban, and migrant- labor sectors. It also examines related issues of enterprise and social-security reform that are essential for a well-functioning labor market. The central thesis of the book is that economic growth has not been accompanied by adequate labor market reforms, particularly within the urban state sector, and that a more systematic restructuring of China's labor arrangements is essential if high growth rates are to be sustained. In developing her argument, the author draws on a series of empirical studies undertaken during the 1990s, using several data sources from the mid-1980s to the mid-1990s. Many of the studies have already been published in some form, mainly as journal articles. A short introductory chapter lays out the pre-reform labor arrangements that produced extreme immobility of labor and disincentives to productivity, and provides the context for assessing how far China has moved in each sector toward a competitive labor market characterized by mobility of labor and rewards to productivity. A "conventional" neoclassical model thus provides the basis for evaluating the extent of China's labor market reforms and the areas where further change is required. Through each piece of analysis the author builds up a picture of different degrees of convergence with the neoclassical model, showing variation from the more competitive labor markets found in the rural agricultural sector to constrained and imperfect urban labor arrangements. The key findings of each chapter are as follows. First, rural agricultural labor markets are reasonably competitive, with evidence of rewards to human capital and with labor supply becoming responsive to changes in wage rates—which was not the case in the pre-reform era. Second, in the rural nonagricultural (Township and Village Enterprise— TVE) sector, wages are related to experience and firm tenure, although the results are less clear for education. For those finding jobs through market channels, however, education is rewarded. Overall, then, the TVE sector retains features that diverge from the expectations of a neoclassical model but with some movement toward greater rewards to productivity. Third, despite the apparent ease of labor mobility between the rural agricultural and nonagricultural sectors, we do not see a convergence of wages between them, a result that is explained by institutional factors and technological dualism. [End Page 216] Turning to the urban labor market, the main problem identified is the constraint on labor mobility, which in turn is posited to reflect more fundamental problems with the state-sector ownership structure. Reforms over the period examined in this book had not led to a productivity-related wage-determination system; instead, overstaffing continued, with wages determined by the profitability of the enterprise rather than labor productivity. The enterprise-linked social-security system was a major barrier to mobility. In terms of rural-urban migration, a significant rural-urban wage gap remains, although with regional variations, and migration remains constrained by institutional factors, including poor information flows. Relaxing these constraints would, in the author's view, lead to significant economic gains. While the findings tell a credible story of a labor market undergoing an uneven transition process, it is perhaps unfortunate that the completion of the book coincided with some major policy changes—to which the author's arguments point. From around 1998, new efforts were initiated to grapple with state-sector restructuring and social-security reform; workers were laid off in much larger numbers; efforts to provide labor-market information and training for alternative forms of employment were dramatically expanded; and there has been a gradual and ongoing dismantling of some of the institutional barriers to migration. While the reforms are far from resolving all the problems highlighted in this volume, China's labor market looks significantly different in 2003 from when many of these analyses were undertaken. At the same...