Labor Market Distortions Research Articles

The Social Opportunity Cost of Capital in the Presence of Labour Market Distortions

This paper examines the conditions under which the social opportunity cost of capital in a tax-distorted economy is equal to the gross-of-tax return to capital plus the excess of the market over the shadow wage bill. Whenever public investment serves as an unpriced (or underpriced) input in the private sector's production process, only part of the excess of the market over the shadow wage bill should be attributed to private-sector capital. In addition, whenever some of the benefits of public investment are appropriated by owners of capital, the gross-of-tax return to capital will tend to overstate the genuine marginal product of capital. The overall implication is that the social discount rate may be less than the gross-of-tax rate of return to capital in the private sector, even if public investment crowds out private investment dollar for dollar.

Education, Labour Market Distortions and Relative Earnings of Different Religion-Caste Categories in India (A Case Study of Delhi)

ABSTRACT The paper ascertains the relative earnings differential among the male adult employees belonging to different religion-caste (RETE) categories. The earnings differentials then are decomposed into a portion attributable to personal characteristics, socio-economic background and job-related variables and the residual attributable mainly to labour-market distortions. It has been found that there is significant difference among RETE categories in terms of type and level of education. Also the returns to education vary with the level and type of education as well as among RETE categories. Further, empirical findings indicate that the impact of education and other human capital variables, socio-economic bacckground and job-related variables varies among the employees of different RETE categories i.e. the sources of earnings differentials differ significantly among the RETE categories. An important public policy implication is that uniform public policies to improve the relative earnings position of the...

Terms of Trade Disturbances, Real Exchange Rates, and Welfare: The Role of Capital Controls and Labor Market Distortions

Terms of Trade Disturbances, Real Exchange Rates, and Welfare: The Role of Capital Controls and Labor Market Distortions

Terms of Trade Disturbances, Real Exchange Rates, and Welfare: The Role of Capital Controls and Labor Market Distortions

Terms of Trade Disturbances, Real Exchange Rates, and Welfare: The Role of Capital Controls and Labor Market Distortions

The Structure of Tertiary Education Fees

This paper is an attempt to apply the standard framework of conventional welfare economics to the question of tertiary education fees. In Section 2, I indicate what that standard framework entails. Specifically, it isolates as the appropriate fee (in the absence of other relevant distortions) the i.e. a net benefit from the marginal student’s education not accruing to the student herself. I argue that information about the size of the latter element is unavailable, and necessarily the subject of conjecture: in other words, we have no firm grounds for deciding between alternative claims that the relevant spillovers are very large or that they are negligible. However, by making what I reckon are fairly plausible assumptions about the nature of such spillovers, I believe we can reliably claim that the standard framework has implications for the appropriate structure of fees; and it is these implications I develop. In Section 3, the influence of marginal cost on fees is discussed. Since marginal costs under the best available estimates differ quite significantly among courses (almost twice as much for medicine, say, as for economics), fees should also differ among courses, or at least should do so unless spillover benefits also differ among courses according to differential marginal costs (which I find hopelessly implausible). Students should take into account the differing costs of alternative course in main choices among them: if a student is indifferent between a course costing $4,000 and one costing $7,500 she should be encouraged to pursue the former. The logical way to do this is to incorporate cost differentials into fee differentials dollar-for-dollar. Fees should on the same basis be higher in the more expensive second and third years of a course than in first year. In Section 4, I discuss the question of fee differentials across students. My argument here is that students should be encouraged to go to university according to the probability that they will be successful and that this probability differs across students with different (measurable) intellectual capacities. Section 5 considers the extent to which labour market distortions and tax considerations might overturn the arguments for differential fees. My general conclusion is that they do not: and that indeed some of the arguments seem to be somewhat stronger when the obvious distortions are allowed for. Section 6 offers a brief concluding summary.

Labor market distortions, the structure of protection and direct foreign investment

This paper analyzes the welfare effects of direct foreign investment in a general model that allows for labor market distortions, trade in both intermediate inputs and final goods, export subsidies and protection in the form of either tariffs or quotas. It is shown that, contrary to the conventional wisdom, there is not, in general, any strong connection between the orientation of the trade regime, sectoral capital intensity rankings and the desirability of attracting foreign investment.

Optimal taxation and public production in an open dual economy

This paper analyses the determinants of optimal tax policy, trade policy and shadow prices for cost-benefit analysis in a dual economy. It breaks new ground by combining in one model the tax and public investment policies considered in the public economics literature with the notion of labor market imperfection central to contributions on the dual economy. Optimal policies are first derived analytically, providing rules for organizing production, setting taxes and off-setting labor market distortions. Production efficiency is shown to obtain for the taxable part of the economy, a generalized Ramsey rule derived for producing-cumconsuming households in the directly non-taxable sector of the economy and new characterizations of optimal rural-urban migration established in the presence of distortionary taxation. A simple general equilibrium model is then numerically implemented on data for a particular developing country. The optimal policies analytically derived before are computed in the model under alternative assumptions about government revenue requirements, the degree to which different sectors of the economy are directly taxable, the nature of property rights and technological substitution possibilities. The results of these computations provide further insight into the theoretical results as well as clarifying their quantitative significance.

An empirical estimate of the effects of labormarket distortions on the factor content of U.S. trade

This study deals with the effects of labor-market distortions on the estimates of human capital used in studying U.S. trade flows. The initial concern was that the levels of human capital attributed to highly concentrated and unionized industries might be erroneously high. This could alter regression estimates not only of the effect of human capital on net exports, but also of other coefficients in the equation. The results of the analysis suggested, however, that when the possibility of distortions is taken into consideration, the signs of the coefficients are unaltered, although some change is evident in their magnitude.

The Effects of Labor Market Distortions on Real Wage Rates: A General Equilibrium Analysis

What are the effects on inputs, outputs, and their prices of a factor market distortion that is introduced into part of an economy? For example, if a union organizes labor in one sector of the economy what do we expect the effects of such organization to be? The standard textbook analysis is that such a distortion would increase the real price of labor in the organized sector, cause that sector's output price to rise, and thus induce a shift in consumption to the other sector's output. Moreover, the increased cost of labor in the organized sector would cause firms in this sector to substitute other factors for labor. Both this sector's output reduction and its input substitution adjustments would result in a displacement of labor to the unorganized sector, driving down the price of labor there. Thus those workers who remained in the organized sector would benefit from such a factor market distortion while those in the unorganized sector would lose.

Productive and Counterproductive Cooperative Monetary Policies

The main result of this paper is that, contrary to the usual conclusion (and presumption) of earlier analyses, increased monetary policy cooperation between two governements does nto automatically increase welfare in either country. In fact, welfare in one or both countries may be higher when central banks conduct their monetary policies independently. It is true that a cooperative regime does produce better responses to certain types of unanticipated disturbances (such as supply shocks or relative shifts in aggregate demand). But when monetary policy is fully discretionary, inter-central bank cooperation can also lead to systematically higher expected rates of inflation: private sector wage setters will choose higher rates of nominal wage growth if they rationally fear that the central banks will coordinate their efforts to lower real wages and raise employment. (The conflict between wage setters and central banks is generated by some type of labor market distortion which causes the natural rate of unemployment to be too high.) Therefore, monetary policy cooperation is unambigously beneficial only in institutional frameworks which eliminate or ameliorate the central banks' credibility problem vis-a-vis wage setters.

Wage Subsidies and Distortionary Taxes in a Mobile Capital Harris-Todaro Model

In prescribing policy to eliminate or mitigate the effects of labour market distortions, some form of wage subsidy is usually among the highest ranking options. Rarely is the source of revenues for these subsidies treated as an explicit issue.' This omission has special significance for the Harris-Todaro (H-T) model of the labour market, since the policy most frequently recommended, whether capital is sector specific or intersectorally mobile, is an across-the-board wage subsidy.2 This effectively eliminates the possibility of taxing one subset of sectors rather than subsidizing its complement-an option often favoured by those theorists who concern themselves with revenue considerations. The next section of this paper sets forth the model of a small, open H-T economy with mobile capital that is the basis for this analysis. Section II re-examines three wage subsidies: on manufacturing wages; on agricultural wages; or on both sectors-assuming that resources for the subsidies are raised by an across-the-board tax on profits. This is in the tradition of CordenFindlay, and we replicate their results-though stating them in more precise form-so that we might have a standard for later comparison. The subsequent sections examine the effects of these subsidies on unemployment and resource allocation if they are financed by a tax on profits in the manufacturing sector (Section III) or by import tariffs (Section IV). Owing to the second-best nature of the H-T model, it will be demonstrated that taxes normally considered distortionary in their own right can be superior to an across-the-board tax if revenues are constrained, and can be very useful instruments if it is the variety of policy tools that is limited. Section V concludes with a ranking of the various subsidy/tax packages.

Segmented labour markets without policy-induced labour market distortions

This paper argues that labour market segmentation does not require labour market distortions. Segmentation appears when innovations are introduced in an initially imbalanced environment: because the capital market is imperfect. Only large firms can adopt the modern techniques. Small firms have to force their workers to reduce their labour incomes in order to compete with the modernized firms. The latter do not reduce wages because their interest is to minimize total labour costs rather than the wage bill alone: with labour a quasi-fixed cost. The difference in behaviour tends to be significant.

Voting with one's feet: A critique of the evidence

This study offers an interpretation of the literature on voting with one's feet, that is, moving to that area which best satisfies one's preferences for public goods. The implications of the literature to date are examined. The study also offers ways in which to improve future research efforts. Regional labor market distortions are examined in depth.

Book Reviews

Book reviewed in this article:Sabotage: A Study in Industrial Conflict, by Geoff BrownIndustry and Labour: Class Struggle at Work and Monopoly Capitalism, by Andrew L. FriedmanWork, Culture and Society in Industrializing America. Essays in American Working‐Class and Social history, by Hubert G. GutmanIn Search of the New Working Class: Automation and Social Integration within the Capitalist Enterprise, by D. GallicClass, Race, and Worker Insurgency: The League of Revolutionary Black Workers, by James A. GeschwenderThe Personnel Managers: a study in the sociology of work and employment, by Tony J. Watson* K. Legge (1978) Power, Innovation and Problem‐Solving in Personnel Management. McGraw‐HillDeveloping Teams and Organizations: A Practical Handbook for Managers and Consultants, by Uri Merry and Melvin E. AllerhandWage‐Price Controls and Labour Market Distortions, by Daniel J. B. Mitchell and Ross E. AzevedoLabour Shortages and Economic Analysis, by Barry Thomas and David DeatonSouth African Trade Unions — History, Legislation, Policy, by M. A. Du Toit

Wage-Price Controls and Labor Market Distortions.

Wage-Price Controls and Labor Market Distortions.

Wage Price Controls and Labor Market Distortions, by Daniel J.B. Mitchell and Ross E. Azevedo, Institution of Industrial Relations, University of California Monograph series #16, 1976, 175 pp.

Wage Price Controls and Labor Market Distortions, by Daniel J.B. Mitchell and Ross E. Azevedo, Institution of Industrial Relations, University of California Monograph series #16, 1976, 175 pp.