Increase In Wage Inequality Research Articles

The Union Threat

This paper develops a search theory of labor unions in which the possibility of unionization distorts the behavior of nonunion firms. In the model, unions arise endogenously through a majority election. As unionized workers bargain collectively with the firm, unionization compresses the wage distribution and lowers profits. To prevent their own unionization, nonunion firms distort the skill composition of their workforce by over-hiring high-skill workers, who vote against the union, and under-hiring low-skill workers, who vote in its favor. Because of decreasing returns to labor, this change in hiring lowers output while reducing the dispersion of wages. In the calibrated economy, removing the threat of unionization, by freezing the union status of firms, reduces unemployment and increases output and the variance of wages. Removing, in addition, all unions from the economy leads to a larger increase in wage inequality but does not further affect output and unemployment. These results suggest that the threat that unionization exerts on nonunion firms, more than the fact that some firms are actually unionized, is the main channel through which unions affect output and unemployment in the U.S. economy.

The changing and unchanged nature of inequality and seniority in Japan

Wage inequality declined in the 1990s, while it increased in the 2000s for full-time male workers in Japan. We find that a decreased return to firm-specific human capital, which has been neglected in previous empirical analyses of inequality, is a key factor preventing a rise in wage inequality during the prolonged period of economic stagnation, known as Japan’s lost decades. We also find that, while changes in returns to general and specific human capital contributed to narrowing wage inequality in the 1990s and widening wage inequality in the 2000s, a significant fraction of the increase in wage inequality in the 2000s is attributable to composition effects arising from an increased share of educated and experienced workers, among whom wages are more dispersed.

Dynamics of Wage Inequality in Thai Manufacturing Sector

Economic growth, poverty, income inequality and how they relate to each other have long been the core issues in economic development. This paper seeks to investigate inequality by employing a regression-based decomposition method developed by Fields (2002). Instead of following prior work that explores household income, I choose to examine a major, if not the most important, component of household income — wage — because wage rates are much more precisely reported and measured. Using a dataset derived from the Thai Labor Force Surveys (1985, 1995 and 2005) and focusing on workers in the manufacturing sector, I find that in 1985, education, experience, and minimum wage zone were the three major factors influencing wage inequality. In 1995 and 2005, “occupation” replacing experience became another factor that had a substantial impact on inequality. An investigation into how wage inequality evolved over time using the Gini coefficient reveals that inequality increased from 1985 to 1995, but decreased from 1995 to 2005. Exploring which factors contributed such changes, I find that education, occupation, minimum wage zone, and urbanization played a key role in the increase in wage inequality during 1985-1995. The decrease in the Gini coefficient and wage inequality during 1995-2005, on the other hand, can be largely explained by education, urbanization, occupation, and domestic expenditure. Although education is the most important factor explaining the inequality in this paper, however; its impact on the inequality depends upon the level of education. In all study periods, elementary and lower secondary education reduced inequality, while any other education level such as postgraduate education worsened inequality. These empirical results provide some useful insights into how governments may prioritize their budgets so as to effectively tackle inequality.

Has Performance Pay Increased Wage Inequality in Britain?

Has Performance Pay Increased Wage Inequality in Britain?

Technological Change, Skill Demand, and Wage Inequality: Evidence from Indonesia

• We examine how technological change affects wage inequality in Indonesia. • Indonesia has experienced rising wage inequality since the early 2000s. • Inequality increased after shifts in relative labor demand within and between industries. • International trade and FDI increase demand for skilled workers and skill premium. This study provides empirical evidence of the impact that technological progress has on wage inequality in Indonesia. The share of educated workers and their skill premiums have recently increased. A supply–demand analysis, using labor force survey data during 1990–2009, shows that both the between- and within-industry shifts of labor demand that favored skilled workers contributed to the widening wage inequality since the early 2000s. Evidence from firm-level data in the manufacturing sector indicates that the diffusion of foreign technologies through imports and foreign direct investment caused demand to shift toward more skilled labor and increased wage inequality.

Loonsverlaging of reductie van het personeelsbestand in de economische crisis? Rapportage van Duitse en Nederlandse werknemers

Wage or workforce adjustments in the crisis?1How do organisations respond if the crisis affects their business? Do they adjust wages or workforce? Using data from a continuous employee web-survey firm-level responses to the economic crisis in Germany and the Netherlands are investigated. Workforce adjustments were a continuous strategy. No evidence was found of wage concessions traded-off for job protection. Collective bargaining ensured robust wage-setting rather than employment protection. Basic wage reductions were reported more often for low-educated and low-wage employees thereby increasing wage inequality. Labour hoarding was reported predominantly by young, male employees with a permanent, full-time contract.

Pay for Performance and Compensation Inequality: Evidence from the ECEC

This article examines the relationship between performance-based pay and widening wage inequality using data from the Employer Costs for Employee Compensation (ECEC). The results suggest that jobs using performance-based pay have made only a modest contribution to increased inequality during the 1994 to 2010 period. These results contrast with those reported by Lemieux, MacLeod, and Parent (2009), who investigated the relationship between performance-based pay and wage inequality using the Panel Study of Income Dynamics. They found that pay for performance accounted for about one-fifth of the growth in the variance of male wages between the late 1970s and the early 1990s, and for almost all of the increase in wage inequality in the top quintile during the same period.

Can High Income Consumers Increase Within-Industry Wage Inequality?

High income consumers make up a growing portion of the US domestic consumer base. This study asks whether dependence on high income consumers can increase wage inequality in the industries that serve them. High income consumers bid up high status products, and reward small differences in producer output. If successful producers share rents, or pay more for talented workers, these tendencies could skew elite-oriented industries toward unequal wage structures. I examine the relationship between industry revenue dependence on consumers making more than $150,000 per year, and wage inequality within industries. I find that industry dependence on elite consumers is associated with increased within-industry wage inequality, even after removing variation in wages due to occupations, education, and industry-level characteristics. These findings suggest a new channel through which income inequality can become self-perpetuating: as the US economy becomes more dependent on high income consumers, this dependence could further polarize the wage structure.

Trade and wage inequality: A specific factor model with intermediate goods

In this paper we try to address the current debate on the link between trade liberalization and wage inequality in developing countries within a general equilibrium framework. For this we set up two distinct models of trade. First, assuming a specific factor model with full employment we show that for a small developing economy wage inequality is related to labour productivity rather than freer trade per se. The model also suggests that while trade may increase wage inequality, this does not imply that poverty increases as wages of unskilled workers increase. However, in the second model with surplus labour specific to the non-traded agricultural good which is also an intermediate good, we show that the two wage rates move in opposite direction; but either of the two wage rates could increase depending on whether the export good is skilled or unskilled labour intensive. Interestingly, in the event of rising wage inequality, the model predicts that absolute poverty may rise.

The wage premium puzzle and the quality of human capital

The wage premium for high-skilled workers in the United States, measured as the ratio of the 90th-to-10th percentiles from the wage distribution, increased by 20% from the 1970s to the late 1980s. A large literature has emerged to explain this phenomenon. A leading explanation is that skill-biased technological change (SBTC) increased the demand for skilled labor relative to unskilled labor. In a calibrated vintage capital model with heterogenous labor, this paper examines whether SBTC is likely to have been a major factor in driving up the wage premium. Our results suggest that the contribution of SBTC is very small, accounting for about 1/20th of the observed increase. By contrast, a gradual and very modest shift in the distribution of human capital across workers can easily account for the large observed increase in wage inequality.

The Impact of Outward FDI on the South Korean Labor Market: Evidence on the Wages of Four Types of Workers

(ProQuest: ... denotes formulae omitted.)I. IntroductionRecently, globalization has been rapidly progressing with the help of such factors as reduction in transportation costs, development of IT technology, and lowered trade barriers, which consequently have accelerated the OFDI (Outward Foreign Direct Investment) of multinational corporations to optimize their productivity. The scale of OFDI around the world soared to 1.4 trillion U.S. dollars in 2012 from 21.4 billion U.S. dollars in the 1990s (UNCTAD, 2012). The dramatic increase in OFDI becomes a direct cause of as it accelerates relocation of production activities overseas (Kang and Lee, 2011).It has started to become more convincing that OFDI and the diminished domestic production activities caused by deindustrialization could create negative impacts on the labor market in terms of employment and wages. In particular, a concern was raised that relocation of production sites could reinforce wage inequality, victimizing specific laborers. For instance, Slaughter (2000) points out that affiliate activities of multinationals may substitute unskilled-labor- intensive production, giving rise to the relative demand-shift from skilled to unskilled workers.The purpose of this paper is to find empirical evidence that OFDI tends to accelerate wage inequality. However, this paper addresses the possibility that the effect of OFDI can be heterogeneous depending on the types of workers. Using individual panel data published by Korean Labor Institute (KLI), we classify the workers into four categories depending on skill-intensity and job-permanency. Moreover, we examine the effect of OFDI based on investment destination: OFDI to OECD and non-OECD countries. The empirical results indicate that permanent workers obtain more wage-benefit than temporary ones by OFDI regardless of skill-intensity. In addition, when OFDI is divided into OECD and non-OECD, it turns out that their impacts are quite different.In fact, the wage inequality triggered by reallocation of production is not a surprising issue, and there have been active discussions. According to Feenstra and Hanson (1996a), one of the most representative studies regarding the issue, 15-33 % of wage inequality observed in the manufacturing industry in the U.S. from 1979 to 1990 can be explained by global outsourcing. Other analogous studies conducted on the effects of global outsourcing or OFDI on increasing wage inequality also drew similar conclusions (Anderton and Breton, 1999; Head and Ries, 2002; Hijzen et al., 2005; Hsieh and Woo, 2005; Ahn et al., 2008; Becker et al., 2008; Driffield et al., 2009; Ebenstein et al., 2012). On the other hand, Slaughter (2000) concludes that relocation of multinational corporations' production activities does not necessarily increase relative demand for skilled labor. There are also a significant number of researches that estimate that OFDI has little effect on relative demand for skilled labor or at the least, has even positive influences. (Lipsey, 2000; Lipsey, Ramstetter, and Blomstrom, 2000b; Becker et al., 2008; Masso et al., 2008).Without considering the fact that the effect of OFDI on employment or wages can vary by individual level, however, those studies simply focus on the overall size of wage inequality. Facing the matter, Geishecker and Gorg (2008) analyzed the effect of outsourcing on individual wages through utilization of individual panel data and discovered that the effect of outsourcing on wages can be heterogeneous according to individual skill-intensity. Geishecker and Gorg (2008) categorized workers into three different groups according to skill-intensity and demonstrated an empirical analysis result that the wages of the group with the lowest skill-intensity increased by 1.8% whereas the highest skill-intensity group benefited with a 3.3% increase.Meanwhile, another perspective that the effect of outsourcing on wages can vary according to contract types (which also used individual panel data as Geishecker and Gorg (2008) did) started to gain attention. …

On modeling task, skill and technology upgrading effects of globalization with heterogeneous labor

We adapt Yeaple's (2005) heterogeneous agent framework to model firms in the North as making explicit offshore outsourcing decisions to cheap-labor economies. We highlight how firms' technology transformations due to globalization will induce skill upgrading in the North, increase aggregate productivity, average wages and therefore total welfare at the cost of increased wage inequalities. We analytically derive conditions under which all consumers – including lower-skilled workers – might nevertheless gain from the surge of offshore outsourcing. We also show that extending the model to the more realistic case of multi-product firms tends to boost the potential welfare gains.

Wage and workforce adjustments in the economic crisis in Germany and the Netherlands

This study uses data from a continuous employee web-survey to investigate the trade-off between wage and workforce adjustments and the role of industrial relations in firm-level responses to the economic crisis in Germany and the Netherlands. Workforce adjustments seemed to be a continuous organizational strategy, but wage adjustments were less often reported. We found no large-scale evidence of wage concessions being traded-off for job protection in the two countries. Collective bargaining ensured that wage-setting was more robust than employment protection: employees covered by collective agreements reported workforce adjustments more often than wage adjustments. Low-educated and low-wage employees reported basic wage reductions more often: the economic crisis increased wage inequality. Labour hoarding was reported predominantly by young, male employees with a permanent, full-time contract.

Labour unions and wage inequality among African men in South Africa

One Achilles' heel of post-Apartheid South Africa is the growing intra-racial income inequality, particularly among Africans. This paper examines the role of labour unions in explaining this phenomenon among African men given that labour markets are at the core of income inequality in South Africa. Using cross-sectional data drawn from Labour Force Surveys for 2001–10, we find a monotonically declining union wage premium. Further, our results indicate that unions have both compressionary and disequalising effects on wages. The disequalising effect dominates the compressionary effect, suggesting that unions have a net effect of increasing wage inequality among African men in South Africa. This finding implies that there is scope for unions to reduce inequality through initiatives that promote wage compression.

Trade Liberalization and Skill Premium in Chile

This study empirically analyzes whether trade liberalization increases wage inequality between skilled and unskilled workers in Chile during 1974-2007. The findings show that tariff reductions contributed to increases in wage inequality by causing price reductions of unskilled labor-intensive goods protected with the highest tariffs prior to trade liberalization. In contrast, we found no evidence that new technologies embodied in capital and intermediate goods caused skill-biased technological change. In addition, this study shows that an increase in the relative supply of college equivalents did not contribute to wage equalization, while an increase in the minimum wages contributed to wage equalization during the period of the democratic governments.Apertura comercial y mejora salarial al trabajo calificado en ChileEn este trabajo se estudia empiricamente si la apertura comercial en Chile, durante el periodo 1974-2007, amplia la brecha salarial entre la mano de obra calificada y la no calificada. Se comprueba que la desgravacion arancelaria ha contribuido al aumento en la desigualdad salarial a traves de la caida de los precios de los bienes intensivos en mano de obra no calificada protegidos por altos aranceles antes de la apertura comercial. Por otro lado, no se observa ninguna evidencia de que las nuevas tecnologias representadas por la importacion de bienes de capital y de bienes intermedios hayan causado un cambio tecnologico sesgado a favor de la mano de obra calificada. Adicionalmente, los resultados muestran que el aumento en la oferta relativa de trabajadores con nivel universitario o su equivalente no ha contribuido a la reduccion de la brecha salarial; mientras que, en contraste con lo anterior, el incremento del salario minimo ha disminuido la desigualdad salarial durante el periodo de los gobiernos democraticos.

Firm Dynamics and Residual Inequality in Open Economies

Increasing wage inequality between similar workers plays an important role for overall inequality trends in industrialized societies. To analyze this pattern, we incorporate directed labor market search into a dynamic model of international trade with heterogeneous firms and homogeneous workers. Wage inequality across and within firms results from their different hiring needs along their life cycles and the convexity of their adjustment costs. The interaction between wage posting and firm growth explains some recent empirical regularities on firm and labor market dynamics. Fitting the model to capture key features obtained from German linked employer-employee data, we investigate how falling trade costs and institutional reforms interact in shaping labor market outcomes. Focusing on the period 1996-2007, we find that neither trade nor key features of the Hartz labor market reforms account for the sharp increase in residual inequality observed in the data. By contrast, inequality is highly responsive to the increase in product market competition triggered by domestic regulatory reform.

Price competition, inter-firms relationships, bank discrimination and wage inequalities: a post keynesian perspective

The article analyses the impact of price competition on inter-firms relationships, bank discrimination and wages inequalities in a Post Keynesian micro/macro perspective. It engages in the debate on the effect of price competitive pressures on profit margins. Underlying the ability of firms to transfer the constraint of price pressures to other agents in the economy, and the role of credit discrimination by banks, the paper focuses on the case of a transfer to suppliers and/or subcontractors. We then build a macroeconomic model of a disaggregated economy to show the global consequences of such a mechanism. Simulations suggest that price competition doesn’t lead to a reduction in profit margins but rather to increased wage inequalities. Furthermore, the effect on employment of price pressures is all the more reduced that these price pressures are transferred to other agents.

Dynamic effects of labor supply: A mechanism explaining cross-sectional differences in hours

This paper first establishes the empirical fact that over the last quarter of the 20th century, the average weekly hours worked increased for workers in the highest wage quintile while it decreased for the ones at the lowest. In 1976, a worker in the lowest quintile worked 2.8 hours more per week than a high wage worker (worker in the highest quintile), but by 2006, the low wage worker worked 1 hour less. During this period, there was also a wide increase in wage inequality. The typical mechanism in which hours are only determined by contemporaneous wages cannot simultaneously explain the pattern found in both variables for every quintile.This paper attempts to reconcile these cross-sectional trends in both hours and wages for the US during this time period. As a first step, we show that compositional changes (in education, occupation and age) within quintiles can only explain a fraction of the observed pattern. Next, we propose a mechanism in which individuals' current decisions of how much to work take into account two components: the contemporaneous benefit of the wage received, and also how current hours worked affects the probability of moving across the wage distribution in later periods. The latter dynamic component is estimated from our dataset. We find that changes over time in how hours affect these probabilities provided incentives that differ across the quintiles, and are consistent with the labor supply decisions observed in the data. We incorporate these two components into an equilibrium model of heterogeneous agents with uninsurable income risk. We are able to replicate the decline in hours for the bottom of the distribution as well as the increase at the top. The ratio of hours worked between the two groups delivered by the model also fits the trend found in the data.

Endogenous human capital formation, distance to frontier and growth

We examine human capital's contribution to economy-wide technological progress through two channels – imitation and innovation – innovation being more skill-intensive than imitation. We develop a growth model based on the endogenous ability-driven skill acquisition decision of an individual. It is shown that skilled human capital is growth enhancing in the “imitation-innovation” regime and in the “innovation-only” regime whereas unskilled human capital is growth enhancing in the “imitation-only” regime. Steady state exists and, in the long run, the economy converges to the world technology frontier. In the diversified regime, technological progress raises the return to ability and generates an increase in wage inequality between and within groups – consistent with the pattern observed across countries.

Taxation of Human Capital and Wage Inequality: A Cross-Country Analysis

Wage inequality has been significantly higher in the United States than in continental European countries (CEU) since the 1970s. Moreover, this inequality gap has further widened during this period as the US has experienced a large increase in wage inequality, whereas the CEU has seen only modest changes. This paper studies the role of labor income tax policies for understanding these facts. We begin by documenting two new empirical facts that link these inequality differences to tax policies. First, we show that countries with more progressive labor income tax schedules have significantly lower before-tax wage inequality at different points in time. Second, progressivity is also negatively correlated with the rise in wage inequality during this period. We then construct a life cycle model in which individuals decide each period whether to go to school, work, or be unemployed. Individuals can accumulate skills either in school or while working. Wage inequality arises from differences across individuals in their ability to learn new skills as well as from idiosyncratic shocks. Progressive taxation compresses the (after-tax) wage structure, thereby distorting the incentives to accumulate human capital, in turn reducing the cross-sectional dispersion of (before-tax) wages. We find that these policies can account for half of the difference between the US and the CEU in overall wage inequality and 76% of the difference in inequality at the upper end (log 90-50 differential). When this economy experiences skill-biased technological change, progressivity also dampens the rise in wage dispersion over time. The model explains 41% of the difference in the total rise in inequality and 58% of the difference at the upper end.