Increasing Wage Dispersion Research Articles

Wage inequality and economic growth. A reassessment of the effects of Francoist developmentalism on income distribution in Spain

ABSTRACT The relationship between economic development and inequality has been closely examined by researchers. From the seminal work of Kuznets to the more recent work of Piketty, market forces in boom cycles, on the one hand, and institutional action, on the other, have been featured as the main drivers of change in income distribution towards more egalitarian societies. In the Spanish case, previous research has described varied processes with regard to the period of growth that followed the approval of the Stabilisation Plan during the Franco dictatorship (1959–1973). Thus, Alcaide reportedly detected a limited capacity of the developmentalist growth model to reduce inequality, which he attributed to institutional limitations. In contrast, later studies have highlighted the decline in inequality during the same period. This paper aims to investigate the effects of this growth cycle by examining the behaviour of wages in the most dynamic sector of the Spanish economy, industry. Specifically, by using the wage survey compiled by the Instituto Nacional de Estadística, the paper nuances previous research and shows how despite explosive growth, the developmentalist model and the peculiar institutional framework built within the Franco dictatorship contributed to increasing wage dispersion and income inequality in most industrial sectors.

Automation, robots and wage inequality in Germany: A decomposition analysis

AbstractWe conduct a decomposition analysis based on recentred influence function (RIF) regressions to disentangle the relative importance of automation and robotization for wage inequality in the manufacturing sector in Germany between 1996 and 2017. Our measure of automation threat combines occupation‐specific scores of automation risk with sector‐specific robot densities. We find that besides changes in the composition of individual characteristics, structural shifts among different automation threat groups are a non‐negligible factor associated with wage inequality between 1996 and 2017. Moreover, the increase in wage dispersion among the different automation threat groups has contributed significantly to higher wage inequality in the 1990s and 2000s.

Trade and Wage Inequality: The Mediating Roles of Occupations in Germany

Recent evidence shows that rising wage inequality in industrialized countries can partially be attributed to trade integration. However, it is unclear what the mechanisms behind this relationship are. Previous explanations pointed toward the displacement of mid-wage manufacturing workers as a response to rising imports. However, for Germany it has been shown that rising exports likewise create manufacturing jobs, indicating that industry-based explanations fall short. We argue that focusing on changes of the occupational composition, as well as changes in the occupation-specific median and top wages, may help to explain the effects of trade on inequality. We draw on a task-based approach, theories of power relations between occupations, as well as self-selection by firms to arrive at predictions about the mediating role of occupations. We analyze German trade relations with China between 1994 and 2010 using social security data (BHP, IEB) and data on international trade flows (COMTRADE). Applying an instrumental variable approach, we find that, surprisingly, imports do not affect wage inequality. Instead, rising exports to China are responsible for the effects of trade integration on inequality as they increase wage dispersion within German labor market regions. Although increased trade integration alters the occupational task composition, we find no evidence that these shifts mediate the effects of exports on wage inequality. Instead, exports increase the wages of some occupations, especially for top earners, highlighting the importance of focusing on within-occupation dynamics.

Rising Concentration and Wage Inequality

Wage inequality has risen in many countries over recent decades. At the same time, production has become increasingly concentrated in a small number of firms. In this paper, we show that these two phenomena are linked. Theoretically, we show that shocks that increase concentration will also lead to an increase in wage dispersion between firms. Empirically, we use industry-level data from 14 European countries over the period 1999-2016 and show robust evidence of a positive and statis-tically significant correlation between concentration and between-firm wage inequality, driven by increases in market shares and wages in high productivity firms.

Dissecting Between‐Plant and Within‐Plant Wage Dispersion: Evidence from Germany

Using rich linked employer–employee data for (West) Germany between 1996 and 2014, we conduct a decomposition analysis based on recentered influence function (RIF) regressions to analyze the relative contributions of various plant and worker characteristics to the rise in German wage dispersion. Moreover, we separately investigate the sources of between‐plant and within‐plant wage dispersion. We find that industry effects and the collective bargaining regime contribute the most to rising wage inequality. In the case of collective bargaining, both the decline in collective bargaining coverage and the increase in wage dispersion among the group of covered plants have played important roles.

GLOBAL TRENDS IN INCOME DISTRIBUTION: LONG-RUN INFLUENCES ON INCOME INEQUALITY

This paper provides a comprehensive overview of the development in income distribution and outlines its major long-term trends of 23 countries worldwide. These countries are clustered in four groups covering the core advanced, the Nordic, the emerging, and the least developed economies of the world. This paper applies different measures to analyse income distribution in three dimensions: national income, functional income distribution, and personal income distribution. Depending on the indicators applied the time period ranges between 1960 and 2012. The empirical analysis shows that increases in national incomes are most pronounced in the advanced economies. The emerging economies also exhibit an upward trend in national income, but it has been less substantial. The least developed economies, however, have been detached from this trend and remain isolated. Moreover, this paper illustrates that there has been an enormous re-distribution of income. During the last three decades, the labour share of income has declined in nearly all countries under study. This development went hand in hand with increased personal income inequality. Disposable income inequality and market income inequality have both increased over the past 30 years. Wage dispersion also rose substantially contributing to greater income inequality. Additionally, the escalation of top income shares as well as the expansion of low paid employment has led to a growing gap between the top and the bottom income earners. This analysis also presents important interlinks between greater income inequality, the fall of the wage share, and increasing wage dispersion.

Deunionization and job polarization – a macroeconomic model analysis for a small open economy

ABSTRACTDeclining unionization rates and job polarization are two important labor market developments of recent decades. A large body of literature has analyzed these phenomena separately, but little has been done to see whether there is a link between them. We employ a macroeconomic model for a small open economy with a large input–output core to analyze how deunionization may cause job polarization. Our analysis shows that medium-skilled workers are negatively affected by deunionization, mainly as a result of the heterogeneity of the elasticities of substitution between different types of labor. While the elasticities of substitution between high- and medium-skilled labor are relatively low, the elasticities of substitution between medium- and low-skilled are relatively high. As a result, when deunionization leads to increased wage dispersion, we find that demand for low-skilled increases at the expense of medium-skilled labor, thus yielding a more polarized labor market.

Wage Inequality and Return to Education in Indonesia: Quantile Regression Analysis

It is essential to the government to recognize the factors causing the increasing trend of income inequality in Indonesia since the Gini coefficient increased between 1996 and 2016. Moreover, wage inequality, which represented by high percentile and low percentile of income, also shows widening gap since 2003. This study focuses on the factors of wage inequality acceleration through the supply side approach that follows the Mincerian wage equation model. Specifically, this paper aims to investigate the association between the return to education and wage inequality in Indonesia. The quantile regression method is applied to compute the return on the investment at different points of the wage distribution. The main finding is that education contributes to an increasing wage inequality due to the significant variation in the rate of return to education in different quantile and as increasing wage dispersion within the same education.DOI: 10.15408/sjie.v7i1.6071

Dissecting Between-Plant and Within-Plant Wage Dispersion - Evidence from Germany

Using rich linked employer-employee data for (West) Germany between 1996 and 2014, we analyze the most important drivers of the recent rise in German wage dispersion and pin down the relative contribution of plant and worker characteristics. Moreover, we separately investigate the drivers of between-plant and within-plant wage dispersion. We also analyze the sources of the recent slowdown in German wage inequality and compare the results for West Germany to the ones for East Germany. We disentangle the relative contribution of each single variable to the rise in wage dispersion using recentered influence function (RIF) regressions. The most important drivers of wage dispersion are industry effects and the bargaining regime. The former predominantly works through the wage structure effect while, in the latter case, both the decline in collective bargaining coverage and the strong increase in wage dispersion within the group of covered plants have played a substantial role. While education has been another factor contributing to both between-plant and within-plant wage inequality, other candidate factors such as plant size, the exporting status, plant technology, and investment intensity are all of little if any direct quantitative importance for the increase in wage dispersion.

Can the implementation of the Europe 2020 Strategy goals be efficient? The challenge for achieving social equality in the European Union

Research background: Economic crisis hit all the European Union Member States hard, with the impact of crisis varying considerably. The low growth performance in the EU has increased concerns regarding an increasing wage dispersion, income inequality at large, and social exclusion in line with poverty. Inequality should be seen as a cornerstone of both sustainable and inclusive growth under the Europe 2020 Strategy. Social inequality in the EU is a real problem, which hampers sustainable economic growth.
 Purpose of the article: The purpose of this study is to introduce evaluation of social development convergence and divergence trends between the EU Member States in the context of the Europe 2020 Strategy. The study gives an outline of the issues of the labour market and income disparities and poverty. Policymakers must be clear about what social objectives they are aiming to achieve, therefore special attention is paid to headline national goals of the Europe 2020 Strategy.
 Methods: The main task of this study is to assess social dimension and inequalities problems in the EU27 by applying Data Envelopment Analysis method, resp. time-series dynamic efficiency analysis in the form of output-oriented Malmquist Productivity Index. This study contains changes of key social equality indicators related to the Europe 2020 Strategy and compares objectives and general outlines of period 2010-2015, as well as the impact on national economics and living conditions.
 Findings & value added: Results contain elements of typology premises of the EU28 and point to a large diversity in inequality patterns, as the Author observes both increases and decreases in inequality at the EU level. Recent changes in social inequality have been associated with the business cycle, particularly with the accessibility of the labour market and, of course, with income inequality. Additionally, the development challenges are discussed for improvement of the socioeconomic well-being of the EU and to avoid social disparities.

Labor Demand and Unequal Payments: Does Wage Dispersion Matter? Using German Employer-Employee Data to Analyze the Influence of Intra-Firm Wage Inequality on Labor Demand

AbstractA theoretical analysis examines the relationship between intra-firm wage dispersion and employment at establishments. The analysis relies on the absence of a theoretical consensus regarding the influence of wage dispersion on labor demand. To prove the theoretical considerations, regressions were conducted on German linked employer-employee data from the Institute for Employment Research (LIAB) for 1996 through 2008. More specifically, fractional probit models for the panel data and a fixed effects regression with a log-odds transformation of the dependent variable were used to estimate the share equations of a labor demand model, including different measures of wage dispersion. The results illustrate a negative influence of the residual wage inequality that takes into account the composition of the workforce in the establishment. In addition, an increasing wage dispersion at the lower end of the wage distribution decreases the labor demand of the establishment; however, this leads to the estimates of the overall wage dispersion becoming insignificant.

The evolution of job stability and wages after the implementation of the Hartz reforms

We address the concerns about rising inequality in the German labour market after the implementation of the Hartz reforms between 2003 and 2005. We focus on the quality of new jobs started between 1998 and 2010 in West Germany in terms of job stability and level of earnings. Using social security data drawn from the Integrated Employment Biographies, we analyse the distributions of job durations and wages and model their determinants at the worker level. Our results show a high degree of job stability during and after the reform years, decreasing wage levels and increasing wage dispersion.

Energy Prices and Wage Dispersion

We find that oil supply shocks decrease average real wages, particularly skilled wages, and increase wage dispersion across regions, particularly unskilled wage dispersion. In a model with spatial energy intensity differences and nontradables, labor demand shifts, while explaining the response of average wages to oil supply shocks, have counterfactual implications for the response of wage dispersion. Only an additional response in labor supply can explain this latter fact highlighting the importance of general equilibrium effects in a spatial context. We provide additional empirical evidence of regionally directed worker reallocation and housing prices consistent with our spatial model. Finally, we show that a calibrated version of our model can quantitatively match the estimated effects of oil supply shocks.

Why Do Cities Matter? Local Growth and Aggregate Growth

We study how growth of cities determines the growth of nations. Using a spatial equilibrium model and data on 220 US metropolitan areas from 1964 to 2009, we first estimate the contribution of each U.S. city to national GDP growth. We show that the contribution of a city to aggregate growth can differ significantly from what one might naively infer from the growth of the city's GDP. Despite some of the strongest rate of local growth, New York, San Francisco and San Jose were only responsible for a small fraction of U.S. growth in this period. By contrast, almost half of aggregate US growth was driven by growth of cities in the South. We then provide a normative analysis of potential growth. We show that the dispersion of the conditional average nominal wage across US cities doubled, indicating that worker productivity is increasingly different across cities. We calculate that this increased wage dispersion lowered aggregate U.S. GDP by 13.5%. Most of the loss was likely caused by increased constraints to housing supply in high productivity cities like New York, San Francisco and San Jose. Lowering regulatory constraints in these cities to the level of the median city would expand their work force and increase U.S. GDP by 9.5%. We conclude that the aggregate gains in output and welfare from spatial reallocation of labor are likely to be substantial in the U.S., and that a major impediment to a more efficient spatial allocation of labor are housing supply constraints. These constraints limit the number of US workers who have access to the most productive of American cities. In general equilibrium, this lowers income and welfare of all US workers.

The evolution of wealth inequality over half a century: The role of taxes, transfers and technology

Over the last 50 years the U.S. tax system went through a striking transformation that reduced the effective tax rates for top income groups and raised transfers to seniors. This paper investigates the macroeconomic repercussions of this change in policy, particularly for the distributions of income, wealth and consumption. Changes in taxes and transfers account for nearly half of the rise in wealth concentration. Nonetheless, their impact on the distributions of income and consumption has been minor due to changes in equilibrium prices and the offsetting effects of tax cuts and transfers on the dispersion of consumption. Results highlight the role of increasing wage dispersion during this period as the main driver of trends in inequality.

How Selective Are Real Wage Cuts? A Micro‐analysis Using Linked Employer–Employee Data

AbstractUsing linked employer–employee panel data for Germany, we investigate whether firms implement real wage reductions in a selective manner. In line with insider–outsider and several strands of efficiency wage theory, we find strong evidence for selective wage cuts with high‐productivity workers being spared even when controlling for permanent differences in firms' wage policies. In contrast to some recent contributions stressing fairness considerations, we also find that wage cuts increase wage dispersion among peers rather than narrowing it. Notably, the same selectivity pattern shows up when restricting our analysis to firms covered by collective agreements or having a works council.

Disentangling Labor Supply and Demand Shocks Using Spatial Wage Dispersion: The Case of Oil Price Shocks

We find that oil price shocks decrease average wages, particularly skilled wages, and increase wage dispersion across regions, particularly unskilled wage dispersion. In a model with spatial energy intensity differences and nontradables, labor demand shifts, while explaining the response of average wages to oil price shocks, have counterfactual implications for the response of wage dispersion. Only an additional response in labor supply can explain this latter fact highlighting the importance of general equilibrium effects in a spatial context. We provide additional empirical evidence of regionally directed worker reallocation consistent with our spatial model.

An odd couple: individual wage setting and the largest Swedish trade union

The demise of the solidaristic wage policy, followed by the introduction of individual wage setting, is one of many similar changes in the Swedish welfare regime in recent decades. These changes were often demanded by employers and then eventually accepted and implemented by parts of the labour movement, i.e. Social Democracy and its related trade unions. Ever since its introduction in 1993, however, individual wage setting has created much controversy within Kommunal (the Swedish Municipal Workers' Union), the largest trade union in Sweden. In this light, it is interesting to examine the arguments that convinced a majority of the delegates at the decision-making congresses. Two main arguments in favour of individual wage setting have been put forward by union leaders, namely that the new wage system is appreciated by members and that increased wage dispersion increases productivity, which in turn leads to higher wages. This article reviews these arguments. It is found that member surveys suffer from flaws in methodology and that the productivity argument is ill-founded. The reason for the insistence on individual wage setting must be sought elsewhere.

How green was my valley

Purpose– The purpose of this paper is to examine the wage distribution in Spain, its evolution in recent years and the implications for increased wage dispersion. Accordingly, its attention focuses on the following issues: first, the paper investigates how personal, job and firm attributes affect the wages distribution and examine earnings differentials between and within groups of workers according to their individual and job characteristics throughout the conditional wage distribution; and second, the paper analyses whether the business cycle may influence the magnitude of these differentials.Design/methodology/approach– Using administrative data from the Spanish Social Security and the Tax Administration National Agency, the paper estimates OLS and quantile regression (QR) models in order to assess the impact of personal, job and workplace attributes on between- and within-groups wage inequality.Findings– Among other things, we find that, although the average wage has been increasing over time (until 2009), changes have not been uniform across the earnings distribution, making the dispersion fall during boom years but rise during downturn years. Furthermore, changes in the impacts of some characteristics (types of contract, education/qualifications, region and employer size) contributed to higher wage dispersion, while others (tenure) made the distribution more equal.Originality/value– The analysis of the paper in novel in that it investigates whether wage differentials respond to the business cycle and what the source of that variation is. Moreover, it analyses wages differentials not only at the mean but also throughout the conditional earnings distribution, making it possible to assess the impact of these attributes on between- and within-groups wage inequality.

In the aftermath of the German labor market reforms, is there a qualitative/quantitative trade-off?

This paper argues that the German labor market reforms implemented in 2003–2005 were successful, according to the main quantitative indicator of labor market conditions. Long-term unemployment decreased substantially in the years after the reform, and the trend of continuously increasing systemic unemployment was reversed. At the same time, the extreme shock to the GDP incurred by the world recession in 2008/2009 left only minor traces in the German labor market. Employment climbed to an all-time high, and several regions, especially Southern Germany, are close to full employment. One should also stress that youth unemployment in the country is among the lowest in Europe. The evidence from several qualitative indicators of labor market conditions, however, is less clear. Since 2005, these different indicators tell both negative and positive stories. On the positive side, the German ‘job miracle’ could have played a role in this context. Even during the sharpest recession in the post-war period, employment was stable. My interpretation is that this ameliorated the perceived job stability for many workers. On the negative side, the wage growth for many groups of workers is unsatisfactory. Wage inequality has risen substantially. Today, the size of the low-pay sector in Germany is higher than that in almost all other European countries. I argue that the increase in wage dispersion has gone too far. It was not a necessary condition for the improvement of the employment rate but was instead an unintended by-product of the reforms. Therefore, this side effect can be corrected without jeopardizing the indisputable employment rate successes.