Changes In Relative Wages Research Articles

A special fund for gender equality? Institutional constraints and gendered consequences in Swedish collective bargaining

AbstractSweden is often described as one of the world's most gender‐equal societies, but the gender pay gap nevertheless remains large. In 2007, a special gender‐equality fund that targeted women workers was successfully implemented in the collective bargaining agreement. Although it decreased the gender pay gap, it was controversial and has never been employed since. The aim of this article is to increase knowledge concerning the conditions for such “gender‐equality bargaining” through a detailed empirical case study. An in‐depth study of the bargaining process casts light on how the institutional features of bargaining have changed after 2007 in a way that significantly restricts further attempts to make relative wage changes in gender‐segregated labor markets. The findings indicate that increased employer coordination and a strong industry norm appear to hinder gender‐equality initiatives.

Do Foreign Workers Affect Local Wages: Evidence from Israeli Agriculture

This paper examines the changes in the wages of different types of workers in different industries during a period in which the number of foreign workers in Israel increased considerably, especially in agriculture. We focus on unskilled workers, presumed to be substitutes to foreign workers, and skilled workers, who are presumed to be complements. We estimate a difference-in-difference log-wage regression in order to identify the relative wage changes in agriculture, construction and manufacturing, compared to all other industries. We find that the wages of unskilled workers in agriculture decreased compared to the other industries, while the wages of skilled workers and other occupations increased. This is consistent with the view that foreign workers have an important role in affecting the agricultural demand for local workers. Similar results were not found for the other industries, perhaps because their dependence on foreign workers is not as large as in agriculture. In the policy debate over the number of foreign workers in agriculture and their cost, the negative impact on the wages of unskilled workers has to be weighed against the positive impact on the wages of all other workers.

Unpacking Skill Bias: Automation and New Tasks

The standard approach to modeling inequality, building on Tinbergen's seminal work, assumes factor-augmenting technologies and technological change biased in favor of skilled workers. Though this approach has been successful in conceptualizing and documenting the race between technology and education, it is restrictive in a number of crucial respects. First, it predicts that technological improvements should increase the real wages of all workers. Second, it requires sizable productivity growth to account for realistic changes in relative wages. Third, it is silent on changes in job and task composition. We extend this framework by modeling the allocation of tasks to factors and allowing richer forms of technological changes in particular, automation that displaces workers from tasks they used to perform, and the creation of new tasks that reinstate workers into the production process. We show that factor prices depend on the set of tasks that factors perform, and that automation: (i) powerfully impacts inequality; (ii) can reduce real wages; and (iii) can generate realistic changes in inequality with small changes in productivity. New tasks, on the other hand, can increase or reduce inequality depending on whether it is skilled or unskilled workers that have a comparative advantage in these new activities. Using industry-level estimates of displacement driven by automation and reinstatement due to new tasks, we show that displacement is associated with significant increases in industry demand for skills both before 1987 and after 1987, while reinstatement reduced the demand for skills before 1987, but generated higher demand for skills after 1987. The combined effects of displacement and reinstatement after 1987 explain a significant part of the shift towards greater demand for skills in the US economy. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Robot Arithmetic: New Technology and Wages

Existing economic models show how new technology can cause large changes in relative wages and inequality. But there are also claims, based largely on verbal expositions, that new technology can harm workers on average or even all workers. This paper shows— under plausible assumptions—that new technology is unlikely to cause wages for all workers to fall and will cause average wages to rise if the prices of investment goods fall relative to consumer goods (a condition supported by the data). We outline how results may change with different assumptions. (JEL D31, G31, J22, J24, J31, O31, O33)

Changing wage structure in India in the post-reform era: 1993\u20132011

This paper documents the changing structure of wages in India over the post-reform era, the roughly two-decade period since 1993. To investigate the factors underlying these changes, a supply-demand framework is applied at the level of the Indian state. While real wages have risen across India over the past two decades, the increase has been greater in rural areas and, especially, for unskilled workers. The analysis finds that, in rural areas, the changing wage structure has been driven largely by relative supply factors, such as increased overall education levels and falling female labor force participation. Relative wage changes between rural and urban areas have been driven largely by shifts in employment, notably into unskilled-intensive sectors like construction.JEL Classification: J21, J23, J24, J31

Trade liberalization and gender inequality: role of social norms

PurposeThe purpose of this paper is to examine the effects of trade liberalization on gender earning differentials and female labour force participation by considering the interaction between changes in relative wages, intra-household bargaining power and social norms.Design/methodology/approachA three-sector general equilibrium model is developed where female labour supply is determined as a collective household decision and depends on male and female wages and intra-household power distribution. On the other hand, the effect of power distribution on female labour supply depends on social norms.FindingsComparative static analysis shows that a tariff cut may reduce female labour force participation and widen gender earning inequality if (i) the agricultural sector is more male labour-intensive than the informal sector, and the marginal utility of the woman from household work is higher than that of the man or (ii) the agricultural sector is more female labour-intensive than the informal sector, and the marginal utility of the woman’s household work is higher to the man than the woman. Policies to raise the empowerment of women might lead to favourable labour market outcomes for women if the marginal utility of the woman’s household work is higher to the man than the woman irrespective of the factor intensity condition.Research limitations/implicationsThe results signify that the effect of trade liberalization hinges on both factor intensity conditions and the relative work preferences of women vis-à-vis men, which in turn is shaped by social norms.Originality/valueThe paper contributes to the scant theoretical literature on labour market consequences of trade liberalization by considering the gender equality implications of trade liberalization from a supply side perspective. The results of the model are used to explain the recent gendered labour market consequences in India in the aftermath of trade liberalization.

A closer look at the skilled labor demand increase in Brazil

PurposeThe purpose of this paper is to evaluate skilled labor demand determinants in Brazil, considering alternatives explanations: changes in relative wages, non-homothetic technology output growth and skill-biased technical change.Design/methodology/approachThis study relies on a rich and unique matched employer-employee data set for manufacturing sector, from 1996 to 2003. The analysis considers a translog functional form labor demand system estimated using seemingly unrelated regression and instrumental variables to control for possible measurement errors and wages and output endogeneity.FindingsThe demand function estimates suggest that: labor demand underlying technology is non-homothetic, research and development investment is biased toward skilled workers, the non-homothetic technology is not skill biased so output changes contributed positively for skilled labor increase, relative wages played a significant role and international trade has little explanatory power explaining labor demand shifts.Originality/valueThis is the first paper that considers alternative explanations for the increase in the demand of skilled workers for manufacturing in Brazil simultaneously: changes in relative wages, output changes with non-homothetic technology, skill-biased technical change and, to a lesser extent, international trade. The study challenges current empirical evidence that considers trade and trade liberalization as the main factor explaining labor demand shifts.

Estimating the Wage Premium of Collective Wage Contracts: Evidence from Longitudinal Linked Employer–Employee Data

Using a large‐scale linked employer–employee dataset from western Germany, this paper presents new evidence on the wage premium of collective bargaining contracts. In contrast to previous studies, we seek to assess the extent to which differences in wages between workers in covered and uncovered firms arise from the nonrandom selection of workers and firms into collective bargaining coverage. By measuring the relative wage changes of workers employed in firms that change contract status, we obtain estimates that depart considerably from previous results relying on cross‐sectional data. Results from analyzing separate transitions show that leaving industry‐level contracts is associated with subsequent wage losses. However, the results from a trend‐adjusted difference‐in‐difference approach indicate that particularly the transitions to no coverage appear to be associated with negative shocks. Overall, our findings provide no evidence of a “true” wage effect of leaving wage bargaining, once we account for differences in pretransition wage growth.

Does an extra year of primary schooling yeild higher earnings?: Evidence from Kenya

In 1985 significant school reforms prolonged the duration of primary schooling in Kenya from 7 to 8 years. The goal of the reforms, amongst other changes, was to increase skills and consequently increase earnings for workers with primary school education. This paper explores whether the extra year of primary schooling may have enhanced skills and consequently increased relative wages for workers with the additional eighth year of primary schooling. Such an analysis is important for two reasons. First, we are the first to gauge the impact of the reforms on relative wage changes for workers with primary school education in a developing country setting particularly in sub-Saharan Africa. Second, and more importantly, such an inquiry is warranted because by focusing solely on relative wage changes for primary school educated workers, we consider whether the reforms did actually increase relative wages for workers with more i.e. 8 years of primary schooling without the confounding effects of post primary school education (i.e. secondary, tertiary, middle-level and university education) on earnings. Our empirical technique takes advantage of exogenous variation induced by the new policy and employs a data-driven pseudo regression discontinuity design to consider whether the new school reforms did indeed create a wage discontinuity for workers with 7 and 8 years of primary school education at the cutoff point in 1985. Utilizing data from the 2004/2005 Kenya Integrated Household Budget Survey, our findings shed new light. We find that although the relative wage for workers with 7 years of primary schooling is marginally higher, the trajectory of the age-earnings profile is relatively steeper for workers with the 8th year of primary schooling. This finding, consistent with human capital theory, suggests that workers with the extra year of primary schooling would earn a higher future relative wage. As such, from a policy standpoint, increasing the duration of primary school education may be a necessary but not a sufficient condition for increasing relative wages for workers with the added year of primary schooling at least in the short run. Short run underlying factors, such as differences in age, years of labor market experience, compounded by transition bottlenecks (not considered in this paper but widely discussed in the literature) may inhibit an instantaneous wage increase for workers with the added year of primary schooling.

Relationship between wages, labour productivity and unemployment rate in new EU member countries

e main aim of this article is to nd out the extent to which relative labour productivity and relative unemployment rate changes determine relative wage changes. We use average annual macro-data for the period 2002-2013 for Poland and other 5 new EU members: Estonia, Hungary, Slovak, Czech Republic and Slovenia. Using Poland as benchmark, rst we examine the correlation between wage, productivity and unemployment rate changes in countries in question. en, using panel data model we assess the elasticities of the relative wage changes with regard to relative productivity and unemployment changes. We found out that the trajectory of wage, productivity and unemployment rate development in new EU member countries is diversi ed. We con rmed a strong relationship between wage and productivity ratio changes in Poland related to Czech Republic, Estonia and Hungary. Moreover, an increase of productivity in Poland in comparison to Czech Republic is greater than an increase of wages in Poland in comparison to Czech Republic. e same relation occurs in Slovak and Slovak Republic. At the same time the productivity in Poland in relation to Hungary and Estonia has been growing slower than the wages in Poland in comparison to Hungary and Estonia. e correlations between wage and unemployment rate ratios are of smaller signi cance.

Book Review: Occupational Change in Europe: How Technology and Education Transform the Job Structure

What types of jobs are becoming more important in our economies, and what causes these changes? This timely book by Daniel Oesch attempts to tackle these questions for five European countries (Britain, Denmark, Germany, Spain, and Switzerland), over 1990 to 2008. For each country, Oesch analyzes changes in the structure of employment and uses a supply-demand-institutions (SDI) logic to interpret these changes. The SDI framework follows that of the “canonical model” of labor markets. Such a model attributes changes in skill-upgrading and the skill premium to shifts in the relative demand for skilled workers due to technological progress and globalization; to shifts in the relative supply of skilled workers due to changes in educational attainment growth rates and immigration; and to labor market institutions such as collective bargaining and minimum wages. Despite its simplicity, the SDI framework has proved to be extremely successful in explaining skill-upgrading in employment as well as changes in the skill premium over time. The SDI framework therefore is a natural starting point to discuss recent changes in relative occupational employment and wages. The author does this by using an easy-to-follow methodology and by drawing on a literature of related work from the fields of sociology and labor economics.

Rural-Urban Migration and the Skill Wage Premium in Brazil: 1980-2000

We use a production function approach to determine the impact of increased labour supply of different skill level on the skill wage premium. In particular, we use data the Brazilian Population Census for 1980 to 2000, for which we have consistent data on cities, to estimate the elasticity of substitution between high and low-skill workers. Unlike the international migration literature, we can estimate the response of out migration from rural areas in response to exogenous shocks, such as rainfall shocks and changes in transportation costs, and use the predicted value from these shocks to construct our instrumental variable. We nd an elasticity of substitution between high and low-skill workers of 0.56, much lower than what has been found in the international migration literature. Our simulations show that migration between 1991 and 2000 had only a small impact of the skill wage gap, a 1.1% decrease in the wage gap between high and low-skill workers in Brazil, explaining only 5% of the changes in relative wages between high and low-skill workers seen in the data during this time period. Though this impact is small is it is 2.5 times larger than what we would have found using the elasticity of substitution between high and low-skill of developed countries.

Wage Rigidity, Inflation, and Institutions

AbstractWe study the possible existence of downward nominal wage rigidity (DNWR) at wage growth rates different from zero in aggregate data. Even if DNWR prevails at zero for individual workers, compositional effects might lead to falling aggregate wages, while changes in relative wages combined with DNWR might lead to positive aggregate wage growth. We explore industry data for 19 OECD countries, over the 1971–2006 period. We find evidence for a floor on nominal wage growth at 6 percent in the 1970s and 1980s, at 1 percent in the 1990s, and at 0.5 percent in the 2000s. Furthermore, we find that DNWR is stronger in country‐years with strict employment protection legislation, high union density, centralized wage setting, and high inflation.

An accounting exercise for the shift in life-cycle employment profiles of married women born between 1940 and 1960

Life-cycle employment profiles of married women born between 1940 and 1960 shifted upwards and became flatter. We calibrate a dynamic life-cycle model of employment decisions of married women to assess the quantitative importance of three competing explanations of the change in employment profiles: the decrease and delay in fertility, the increase in relative wages of women to men, and the decline in child-care costs. We find that the decrease and delay in fertility and the decline in child-care cost affect employment very early in life, while increases in relative wages affect employment increasingly with age. Changes in relative wages, in particular returns to experience, account for the bulk (67 percent) of changes in life-cycle employment of married women.

Factor price overshooting with trade liberalization: theory and evidence

AbstractThis paper develops an intra‐industry trade model with skilled and unskilled labor as factors of production, endogenous accumulation of skilled labor and firm heterogeneity in factor intensities to examine the effect of trade reforms on factor prices. Since exporters are more skill intensive than non–exporters, a decrease in trade barriers initially increases wage inequality between skilled and unskilled workers, as a result of an increase in the relative demand for skilled labor. Over time, however, as agents respond to the change in relative wages by investing in skilled labor, the relative wage of skilled labor decreases. Evidence from Chilean plant–level data supports the idea of factor price overshooting with trade liberalization.

Relative Wage Changes and Fertility in the US

During the last several decades, the US wage structure experienced substantial changes because of energy price shocks, increased international competition, and technological change. Katz and Murphy, among others, argued that these changes reflected a rise in demand for skilled workers and women. I use these types of relative wage changes to identify the effects of women's and men's earnings on fertility rates. Measurement error in grouped regressions is addressed by applying the Devereux unbiased-error-in-variables estimator. I find that higher earnings of men increase fertility among younger married women. Holding men's earnings constant, increased wages of married women reduce fertility among the younger women and increase it among the older women.

Heterogeneous Firm Responses to Rising Teenage Wages

Abstract. Substantial youth minimum wage changes in New Zealand between 2000 and 2007 raised teenage average wages by 5–10 per cent relative to those for adults. We use Statistics New Zealand's Linked Employer–Employee Database (LEED) to examine whether firms' teenage labour demand responses to these changes are greater for firms with higher teenage‐employment share. We find evidence that high teen‐employers reduced their teen employment relative to other firms and had lower survival rates over the period. However, firms that entered the main teen‐employment industries had higher teen‐employment shares than continuing firms. The results are consistent with endogenous technology adoption in response to non‐marginal changes in relative wages.

Estimating the Wage Premium of Collective Wage Contracts - Evidence from Longitudinal Linked Employer-Employee Data

Using a large-scale linked-employer-employee data set from western Germany, this paper presents new evidence on the wage premium of collective bargaining contracts. In contrast to previous studies, we seek to assess the extent to which differences in wages between workers in covered and uncovered firms arise from the non-random selection of workers and firms into collective bargaining coverage. By measuring the relative wage changes of workers employed in firms that change contract status, we obtain estimates that depart considerably from previous results relying on cross-sectional data. Results from analysing separate transitions show that leaving industry-level contracts is associated with subsequent wage losses. However, the results from a trendadjusted difference-in-difference approach indicate that the particularly the transitions to no-coverage appear to be associated with negative shocks. Overall, our findings provide no evidence of a ”true” wage effect of leaving wage bargaining, once differences in pre-transition wage growth are accounted for.

A Canada-US Comparison of Labour Market Outcomes among Highly Educated Immigrants

This paper compares changes in relative wages of university educated new immigrant workers in Canada and the United States over the period 1980–2005 and finds that outcomes were generally superior in the United States. Wages of university educated new immigrants declined relative to domestic born university graduates over the study period in Canada but rose between 1990 and 2000 in the United States. The university wage premium for new immigrants was similar in both countries in 1980 but by 2000 was considerably higher in the United States. Accounting for compositional shifts did not alter these basic results.

A Canada-US Comparison of Labour Market Outcomes among Highly Educated Immigrants

This paper compares changes in relative wages of university educated new immigrant workers in Canada and the United States over the period 1980–2005 and finds that outcomes were generally superior in the United States. Wages of university educated new immigrants declined relative to domestic born university graduates over the study period in Canada but rose between 1990 and 2000 in the United States. The university wage premium for new immigrants was similar in both countries in 1980 but by 2000 was considerably higher in the United States. Accounting for compositional shifts did not alter these basic results.