Increase In Wage Inequality Research Articles

The evolution of inequality in productivity and wages: panel data evidence

There has been a remarkable increase in wage inequality in the US, UK and many other countries over the past three decades. A significant part of this appears to be within observable groups (such as age-gender-skill cells). A generally untested implication of many theories rationalizing the growth of within-group inequality is that firm-level productivity dispersion should also have increased. Since the relevant data do not exist in the US we utilize a UK longitudinal panel dataset covering the manufacturing and non-manufacturing sectors since the early 1980s. We find evidence that productivity inequality has increased. Existing studies have underestimated this increased dispersion because they use data from the manufacturing sector which has been in rapid decline. Most of the increase in individual wage inequality has occurred because of an increase in inequality between firms (and within industries). Increased productivity dispersion appears to be linked with new technologies as suggested by models such as Caselli (1999) and is not primarily due to an increase in transitory shocks, greater sorting or entry/exit dynamics.

OFFSHORING AND WAGE INEQUALITY IN DEVELOPING COUNTRIES

The Heckscher-Ohlin model predicts that trade openness causes the skill premium to increase in skill-abundant developed countries, and to decrease in skill-scarce developing countries. Empirical evidence, however, shows that the skill premium declined in some developing countries, while others experienced an increase in wage inequality. This paper develops a North-South model, where firms produce a low-skilled and a high-skilled intensive good. The production of a unit of either good involves a continuum of L-tasks and H-tasks. The L-tasks can be performed by low-skilled workers, and the H-tasks can be performed by high-skilled workers. The Northern firms can produce the task in their headquarters, or offshore the task to the South. The results of the model suggest there is a threshold skill abundance level in the South, above which countries experience an increase in the skill premium after an improvement in the offshoring technology, and below which countries experience a decrease in the skill premium. The same pattern occurs with an improvement in the offshoring technology of tasks in the high-skilled and the low-skilled intensive industries. If wages in local production catch up with wages in the offshoring sector, offshoring does not impact wage inequality at a certain level of skill abundance. A threshold estimation, on 29 developing countries over the period 1982-2000, shows that there is a statistically significant skill abundance threshold, below which the coefficient on the relationship between offshoring and wage inequality is negative, and above which there is no impact of offshoring on wage inequality. Similar results are reached if offshoring is replaced by variables that proxy for the offshoring technology.

Wage Inequality, Increased Competition, and Trade Liberalization: Short Run vs Long Run

This paper examines the impact of increased competition and trade liberalization on skilled–unskilled wage inequality in the short run as well as the long run. It is shown that an increase in the number of firms in the producer services sector increases wage inequality in the short run even if the income shares of capital in the industrial and agricultural sectors were identical. A decrease in the services sector's fixed cost decreases wage inequality in the short run if the income share of capital in the agricultural sector is relatively large. Owing to the presence of external economies, a decrease in the services sector's fixed cost increases wage inequality in the long run. A decrease in import duty on the agricultural good increases wage inequality in the short as well as the long run but its effect in the long run is stronger due to the presence of external economies in the industrial sector.

Do Changes in Job Mobility Explain the Growth of Wage Inequality among Men in the United States, 1977-2005?

To what extent did the increase in wage inequality among men in the United States over the past three decades result from job loss and/or employment instability? We propose a simple method for decomposing the change in wage inequality into components due to upward and downward between-employer mobility and within-employer wage changes using data on men's wages and job mobility from the 1977-2005 waves of the Panel Study of Income Dynamics. We find that downward employer mobility—a proxy for job displacement based on movement to a lower paid job with a new employer—has the largest effect on inequality over a two-year period. However, the effect of job displacement declines with time. We find that the effect of job loss accounts for 39 percent of the increase in wage inequality during the average eight-year period from 1977 through 2005, compared to 52 percent that is attributable to wage changes for workers who stay with the same employer.

Trade and Employment: Stylized Facts and Research Findings

The substantial literature investigating the links between trade, trade policy, and labor market outcomes-both returns to labor and employment-has generated a number of stylized facts, but many open questions remain. This paper surveys the subset of the literature focusing on trade policy and integration into the world economy. Although in the longer run trade opportunities can have a major impact in creating more productive and higher paying jobs, this literature tends to take employment as given. A common finding is that much of the shorter run impacts of trade and reforms involve reallocation of labor or wage impacts within sectors. This reflects a pattern of expansion of more productive firms-especially export-oriented or suppliers to exporters-and contraction and adjustment of less productive enterprises in sectors that become subject to greater import competition. Wage responses to trade and trade reforms are generally greater than employment impacts, but trade can only explain a small fraction of the general increase in wage inequality observed in both industrial and developing countries in recent decades. A feature of the literature survey is that the focus is almost exclusively on industries producing goods. Given the importance of service industries as a source of employment and determinants of competitiveness, the paper argues that one priority area for future research is to study the employment effects of services trade and investment reforms.

Trade Liberalization and Wage Inequality in the Philippines

We examine the role of trade liberalization in accounting for increasing wage inequality in the Philippines from 1994 to 2000 - a period over which trade protection declined and inequality increased dramatically. Using the approach of Ferreira, Leite, and Wai-Poi (2007), we find that trade-induced effects on industry wage premia and industry-specific skill premia account for an economically insignificant increase in wage inequality. A more substantial role for trade liberalization comes through trade-induced employment reallocation effects whereby reductions in protection appear to have led to a shift of employment to more protected sectors, especially services where wage inequality tended to be high to begin with. Nevertheless, the key drivers of wage inequality appear to be changes in economywide returns to education and changes in industry membership over and above those accounted for by our estimates of trade-induced employment reallocation effects. In order for trade liberalization to account for a relatively large portion of the increases in wage inequality, it would have to be a major determinant of the changes in economywide returns to education.

Minimum Wages and Changing Wage Inequality in Indonesia

Wage inequality in Indonesia has decreased over the last two decades. This is in contrast to many developed and developing countries, which have largely seen an increase in wage inequality over this time period. This paper investigates the extent to which minimum wage laws may have contributed to the decrease in inequality over the distribution of wages by looking at changes in individual wages, hours of work, and employment between 1993 and 2007. Besides examining wage inequality in formal sector work we also examine changes in income inequality for the self-employed sector, which comprises a substantial portion of the working population in Indonesia. We find that minimum wages are a significant determinant of increases in monthly wages for the population below the minimum wage line in the formal sector, but not the informal sector. Adverse effects are observed in terms of increases in hours of work for individuals with wages near the minimum wage line. While there are no significant effects on overall employment, we find negative effects on formal sector employment for individuals throughout the wage distribution. The results suggest that minimum wage legislation has played a role in reducing wage inequality in Indonesia.

US Trade and Wages: The Misleading Implications of Conventional Trade Theory

Conventional trade theory, which combines the Heckscher-Ohlin theory and the Stolper-Samuelson theorem, implies that expanded trade between developed and developing countries will increase wage inequality in the developed countries. This theory is widely applied. It serves as the basis for estimating the impact of trade on wages using two-sector simulation models and the net factor content of trade. It leads naturally to the presumption that the rapid growth and declining relative prices of US manufactured imports from developing countries since the 1990s have been a powerful source of increased US wage inequality. In this study we present evidence that suggests the presumption is not warranted. We highlight the sensitivity of conventional theory to the assumption of incomplete specialization and find evidence that is not consistent with it. Since 1987, although US domestic relative effective prices in industries with relatively high shares of manufactured goods imports from developing countries have declined, effective unskilled worker-weighted prices have actually risen relative to skilled worker-weighted prices. If anything, this suggests pressures for increased wage equality. Also in apparent contradiction to theory, the (six-digit North American Industry Classification System [NAICS]) US manufacturing industries with high shares of manufactured imports from developing countries are actually more skill intensive than the industries with high shares of imports from developed countries. Finally, applying a two-stage regression procedure, we find that developing-country import price changes have not mandated increased US wage inequality. While these results conflict with standard theory, they are easily explained if the United States and developing countries have specialized in products and tasks that are highly imperfect substitutes. If this is the case, the impact of increased trade with developing countries on US wage inequality is far more muted than standard theory suggests. Also methodologies such as the net factor content of trade using US production coefficients and simulation models assuming perfect substitution between imports and domestic products could be highly misleading.

Occupations and the Structure of Wage Inequality in the United States, 1980s to 2000s

Occupations are central to the stratification systems of industrial countries, but they have played little role in empirical attempts to explain the well-documented increase in wage inequality that occurred in the United States in the 1980s and 1990s. We address this deficiency by assessing occupation-level effects on wage inequality using data from the Current Population Survey for 1983 through 2008. We model the mean and variance of wages for each occupation, controlling for education and demographic factors at the individual level to test three competing explanations for the increase in wage inequality: (1) the growth of between-occupation polarization, (2) changes in education and labor force composition, and (3) residual inequality unaccounted for by occupations and demographic characteristics. After correcting for a problem with imputed data that biased Kim and Sakamoto’s (2008) results, we find that between-occupation changes explain 66 percent of the increase in wage inequality from 1992 to 2008, although 23 percent of this is due to the switch to the 2000 occupation codes in 2003. Sensitivity analysis reveals that 18 percent of the increase in inequality from 1983 to 2002 is due to changes in just three occupations: managers “not elsewhere classified,” secretaries, and computer systems analysts.

The Declining Relative Status of Black Women Workers, 1980-2002

During the 1980s and 1990s, industrial restructuring led to a marked increase in wage inequality. Women, however, were not as negatively affected by declining manufacturing employment because their pay was relatively low within the industry, and their already high representation in the service sector provided access to newly created opportunities. However, black and white women did not fare equally and the black-white wage gap more than doubled. As both black and white women increased their representation as professionals and managers, black women became more likely to earn low wages within these occupations. Black degree holders also lost ground as they were unable to keep pace with the remarkable gains made by white women degree holders. The growth in black-white wage inequality, then, was not due to black women's relegation to bad jobs. Instead, as women increased their share of good jobs, white women disproportionately benefitted.

Microsimulations for Poverty and Inequality in Mexico Using Parameters From a CGE Model

In the current article, the author uses microsimulations to analyze poverty and inequality through the accumulative impact on wages of sequential changes in the labor market unemployment rate (U), employment structure (S), wages by economic sector (W1), average labor income (W2), and employment structure by skill level (M). These effects are based on the parameters obtained from a computable general equilibrium (CGE) model, with parameters allowing for simulations from 2003 to 2015. The results show that a yearly increment in the real wages will reduce extreme poverty by half. The changes in the employment structure and wages by economic sector reduce poverty in this model because workers move from the agricultural sector to the service sector, implicitly allowing workers to move from sectors with lower wages to higher wages sectors. Nevertheless, an increase in wage inequality is related to changes in the employment structure by skill level as more skilled workers obtain better wages than unskilled employees.

Rising wage inequality, the decline of collective bargaining, and the gender wage gap

This paper investigates the increase in wage inequality, the decline in collective bargaining, and the evolution of the gender wage gap in West Germany between 2001 and 2006. Based on detailed linked employer–employee data, we show that wage inequality is rising strongly — driven not only by real wage increases at the top of the wage distribution, but also by real wage losses below the median. Coverage by collective wage bargaining plummets by 16.5 (19.1) percentage points for male (female) employees. Despite these changes, the gender wage gap remains almost constant, with some small gains for women at the bottom and at the top of the wage distribution. A sequential decomposition analysis using quantile regression shows that all workplace related effects (firm effects and bargaining effects) and coefficients for personal characteristics contribute strongly to the rise in wage inequality. Among these, the firm coefficients effect dominates, which is almost exclusively driven by wage differences within and between different industries. Labor demand or firm wage policy related effects contribute to an increase in the gender wage gap. Personal characteristics tend to reduce wage inequality for both males and females, as well as the gender wage gap.

Rising Wage Inequality, the Decline of Collective Bargaining, and the Gender Wage Gap

This paper investigates the increase in wage inequality, the decline in collective bargaining, and the development of the gender wage gap in West Germany between 2001 and 2006. Based on detailed linked employer-employee data, we show that wage inequality is rising strongly ﾖ driven not only by real wage increases at the top of the wage distribution, but also by real wage losses below the median. Coverage by collective wage bargaining plummets by 16.5 (19.1) percentage points for male (female) employees. Despite these changes, the gender wage gap remains almost constant, with some small gains for women at the bottom and at the top of the wage distribution. A sequential decomposition analysis using quantile regression shows that all workplace related effects (firm effects and bargaining effects) and coefficients for personal characteristics contribute strongly to the rise in wage inequality. Among these, the firm coefficients effect dominates, which is almost exclusively driven by wage differences within and between different industries. Labor demand or firm wage policy related effects contribute to an increase in the gender wage gap. Personal characteristics tend to reduce wage inequality for both, males and females, as well as the gender wage gap.

The role of intangible capital in wage inequality between skilled and unskilled workers in China

Wage inequality between skilled and unskilled workers has increased rapidly in China, right along with its major trading partner-the United States. Trade liberalization and technological improvement have been proposed as causes for the inequality, yet trade liberalization and technological improvement have set the stage for another, possibly more important, cause of the inequality: the movement of intangible capital to China. Intangible capital works synergistically with other inputs to make skilled-workers and tangible capital more valuable. Once the accumulated tangible capital reaches a certain level, its lower unit cost will attract the inflow of intangible capital, which will further expand the demand for skilled workers. As a result, wage inequality becomes larger in China. This paper takes the first step in an attempt to understand the role that the movement of intangible capital plays in the increasing wage inequality in China, and sets out several possible policy prescriptions for China to deal with this inequality.

Rising Wage Inequality, the Decline of Collective Bargaining, and the Gender Wage Gap

This paper investigates the increase in wage inequality, the decline in collective bargaining, and the development of the gender wage gap in West Germany between 2001 and 2006. Based on detailed linked employer-employee data, we show that wage inequality is rising strongly – driven not only by real wage increases at the top of the wage distribution, but also by real wage losses below the median. Coverage by collective wage bargaining plummets by 16.5 (19.1) percentage points for male (female) employees. Despite these changes, the gender wage gap remains almost constant, with some small gains for women at the bottom and at the top of the wage distribution. A sequential decomposition analysis using quantile regression shows that all workplace related effects (firm effects and bargaining effects) and coefficients for personal characteristics contribute strongly to the rise in wage inequality. Among these, the firm coefficients effect dominates, which is almost exclusively driven by wage differences within and between different industries. Labor demand or firm wage policy related effects contribute to an increase in the gender wage gap. Personal characteristics tend to reduce wage inequality for both, males and females, as well as the gender wage gap.

Globalization, Product Differentiation and Wage Inequality

This paper develops a two-country, general equilibrium model of oligopoly in which the degree of horizontal product differentiation is endogenously determined by firms' strategic investments in product innovation. Consumers seek variety and product innovation is more skill intensive than production. Greater import competition increases innovation incentives, and thereby the relative demand for skill. An intraindustry trade expansion following trade liberalization can therefore increase wage inequality between skilled and unskilled workers. In addition, since product differentiation is resource consuming, freer trade entails a potential trade-off between production and variety. The import competition effect highlighted by the model, which plays a key role in determining the general equilibrium, is supported by panel data on Chilean manufacturing plants.

Globalization, Product Differentiation and Wage Inequality

This paper develops a two-country, general equilibrium model of oligopoly in which the degree of horizontal product differentiation is endogenously determined by firms' strategic investments in product innovation. Consumers seek variety and product innovation is more skill intensive than production. Greater import competition increases innovation incentives, and thereby the relative demand for skill. An intraindustry trade expansion following trade liberalization can therefore increase wage inequality between skilled and unskilled workers. In addition, since product differentiation is resource consuming, freer trade entails a potential trade-off between production and variety. The import competition effect highlighted by the model, which plays a key role in determining the general equilibrium, is supported by panel data on Chilean manufacturing plants.

Wage Inequality, Linkages and FDI

This paper extends the existing literature on FDI and wage inequality. We do this in two ways. Firstly, we incorporate more precise measures of inward investment into the model, by allowing for differences in the effects between horizontal and vertical FDI. Secondly, after establishing the effects that inward investment has on wage inequality, we then analyse the reasons for this in terms of the wages paid to skilled and unskilled workers, and the effect that inward investment has on this. We illustrate the important differences that horizontal and vertical FDI have on both wages and wage inequality, and the importance of allowing for regional differences in the results. FDI nationally tends to increase wage inequality, while the local, effects are opposite. FDI into assisted areas tends to increase wage inequality nationally, when the MNEs purchase inputs in the local region.

The impact of foreign outsourcing on wage inequality in US manufacturing: New evidence

Abstract Re-examining the impact of foreign outsourcing on wage inequality in US manufacturing with a new methodology shows that increased parts and components imports from developing countries tended to increase wage inequality but imports from developed countries had no such effect.

Wachsende Lohnungleichheit in Deutschland

Ausgehend von der These einer wachsenden Ungleichheit in der Bundesrepublik wird in diesem Beitrag die Entwicklung der Lohnungleichheit fur den Zeitraum von 1998 bis 2006 untersucht. Hauptziel der Analyse ist es, die Unterschiede in der Entwicklung der Reallohne zwischen verschiedenen Berufsklassen zu bestimmen. Konzeptionell stutzt sich der Beitrag dabei auf okonomische und soziologische Erklarungsansatze. Der derzeit innerhalb der Wirtschaftswissenschaften prominenten These des skill-biased technological change (SBTC), nach der die Verbreitung moderner Informationstechnologien die Nachfrage nach hoch qualifizierten Arbeitskraften relativ zu der nach weniger qualifizierten Personen erhoht hat, wird eine strukturelle Theorie auf der Grundlage der Arbeiten von Aage B. Sorensen entgegengestellt. Nach dieser Theorie ist die wachsende Ungleichheit der Lohne zwischen unterschiedlichen Berufsgruppen insbesondere auf Veranderungen in Rentengenerierungsprozessen zuruckzufuhren. Die empirischen Analysen des Beitrags beruhen auf Daten des Sozio-okonomischen Panels (SOEP) und der BIBB/IAB-Strukturerhebung. Unsere Ergebnisse zeigen zunachst, dass Personen in niedrigen Berufsklassen zu den Verlierern der aktuellen Einkommensdynamik in der Bundesrepublik gehoren. Durch den Einbezug einer breiten Palette von Merkmalen der Berufspositionen wird daruber hinaus deutlich, dass die wachsende Lohnungleichheit in Deutschland bei Weitem nicht allein durch qualifikationsbasierte Veranderungen erklart werden kann, sondern Verschiebungen in ungleich verteilten Macht- und Schliesungspotenzialen die Dynamik sozialer Ungleichheit ebenfalls miterklaren konnen.