Shifts In Labor Demand Research Articles

Technological change and wage premium in a small open economy: the case of Korea

The aim of this study is to analyse the relationship between technological change and the educational wage premium in Korea. The main findings are as follows. First, the changes in educational wage premium were mostly affected by shifts in the supply of college graduates from 1983 to 1993 while the changes were affected more by the shifts in labour demand from 1993 to 2000. Second, the educational wage premium is greater in the industries with rapid technological change than in the industries with slower technological change. Third, the educational wage premium associated with the technological change is mostly explained by the returns to worker's unobserved heterogeneities, which is correlated with education, rather than the returns to education per se. Finally, there are some evidences that skill biased technologies are developed as the number of skilled workers are increasing.

Technology and Wage Differential: A Case Study Using the Indian Manufacturing Sector

In many recent studies, modern computer-oriented technological progress has been cited as one of the main reasons behind the diverging wage differential between workers with and without a college degree. This paper explores the relationship between change in wage differential and technological growth from a developing country's perspective. An individual-level dataset collected and published by the National Sample Survey Organisation (NSSO), Government of India, has been used for the study. Variables indicating Industry-specific technology change (from the Annual Survey of Industries data) are added to this primary dataset. Limitation of data does not allow us to look beyond salaried workers employed in the manufacturing industries. A three-stage sequential selection-correction mechanism, a-la Heckman, is used to take care of this sample selection problem. Moreover, this dataset is plagued with missing information on the earnings variable. A multiple imputation technique is employed to alleviate this problem. In the manufacturing sector, a converging wage differential is observed during the period 1983-1994. My main finding is that the technological change helped to raise the wages of workers at the lowest quartile of the wage distribution, whereas the effect of technological change is insignificant for workers at the topmost quartile of the wage distribution. Moreover I do not find any significant evidence of shift in labor demand towards workers employed in non-production jobs (traditionally, white-collar jobs), caused by technological change.

The Divergence of Human Capital Levels across Cities

Over the past 30 years, the share of adult populations with college degrees increased more in cities with higher initial schooling levels than in initially less educated places. This tendency appears to be driven by shifts in labor demand as there is an increasing wage premium for skilled people working in skilled cities. In this paper, we present a model where the clustering of skilled people in metropolitan areas is driven by the tendency of skilled entrepreneurs to innovate in ways that employ other skilled people and by the elasticity of housing supply.

Skill-biased technical change in US manufacturing: a general index approach

Abstract This article applies recent advances in productivity and efficiency measurement to the evaluation of skill-biased technical change. Using the general index approach we are able to establish an explicit and unconstrained time path for nonneutral technical change between production and nonproduction labor in US manufacturing industries over the 1959–1996 period. Our findings confirm the prevailing interpretation in the labor economics literature that substantial reductions in the relative share of production labor are attributable to a sustained period of nonneutral technical change. However, we find that skill-biased technical change effects are most evident prior to 1983. This predates the diffusion of personal computer technologies in the workplace and the dramatic wage structure changes associated with the 1980s. In contrast to prevailing alternatives, the general index approach also permits us to explain observed shifts in relative labor demand as a combination of price-induced substitution, nonhomothetic output effects and skill-biased technical change responses to a range of proposed elements.

How much longer would men work if there were no employment dislocation? Estimates from cause-elimination work life tables

The impact of labor demand on the decline in labor force participation of older males too young to qualify for Social Security is often acknowledged but seldom measured or incorporated into models of retirement. Using data from Current Population Survey March Demographic files and the periodic employment dislocation supplements, a series of cause-eliminated increment–decrement work life tables captures the impact of employment dislocation and early (before age 65) pension receipt on the employment of older males in a simple overall summary measure: expected work life. Employment dislocation and being offered an early pension are two of the most obvious manifestations of shifts in labor demand that can affect the labor force withdrawal of older males. Consistent with earlier research, I find early pension receipt to be an important factor in early labor force withdrawal but, in addition, employment dislocation has a sizeable direct impact on labor force participation. The findings suggest that employment dislocation and other, yet unmeasured, labor demand factors need to be incorporated into models of retirement.

Intra-metropolitan shifts in labor demand and the adjustment of local markets

I offer new evidence on the adjustment of local labor markets to geographic shifts in labor demand within US metropolitan areas using a unique data set in which metropolitan subregions are geographically matched across the 1970–1980 and 1980–1990 decades. The evidence uncovered paints the following picture. Workers, especially those with less education, make incomplete adjustments within metropolitan areas in response to intra-metropolitan demand shifts. Although blacks may not make especially limited adjustments, they have disproportionately suffered deleterious effects from job movements because the demand shifts have tended to be away from their places of residence.

The Unbearable Stability of the German Wage Structure: Evidence and Interpretation

This paper uses micro data from the German Socio-Economic Panel to document that the wage structure in West Germany was remarkably stable during 1984-97, with little variation over time in wage or earnings inequality between and within different skill groups. Empirical evidence suggests that this stability is attributable to institutional factors rather than market forces. The rigidity of relative wages, despite relative shifts in labor demand that favor skilled workers, has resulted in sharp declines in employment rates for unskilled workers. The microeconomic evidence is shown to have important implications for interpreting trends in wage shares, capital-labor ratios, and aggregate unemployment.

The Rising Returns to Education and Skill-Biased Technological Change in Korea: 1983-2000

This paper analyzes the major causes of the change in returns to education in Korea from 1983 to 2000.The returns to education have declined sharply since 1986 when the supply of young college graduates increased substantially.However, the returns have increased again in the mid-1990s despite the continuing influx of college graduates into the labor market.The changes in returns were mostly affected by shifts in the supply of college graduates from 1983 to 1993 while the changes were affected more by the shifts in labor demand from 1993 to 2000.Moreover, the shifts in demand were mostly due to the within-industry changes rather than the between-industry changes, implying that the impact of the skill-biased technological change [SBTC] was more important than the product demand shifts on relative wages.By using micro-level panel data and industry-level measures of the technological change, the SBTC hypothesis is directly tested.It is found that highly educated workers were paid more in industries with rapid technological change than in other industries.These findings lead to the conclusion that SBTC is the most important factor in explaining the recent rise in the returns to education in Korea.

Immigrant Employment and Mobility Opportunities in California

The 1990s were a period of record immigration to California and the United States, with both legal and unauthorized immigrants arriving in the country and state, a trend that will likely continue in the twenty-first century. Many observers have been concerned that a bimodal pattern of immigrant education, with many immigrants either being poorly or very well educated, overlaps too closely with the increasingly polarized distribution of job growth in the country. The authors’ analysis of changing employment patterns and the shifting distribution of bad and good jobs in the 1994–2000 economic boom suggests, however, that immigration is not fundamentally driving the emergence of a polarized job structure in either California or the United States. That structure derives largely from changes among the native born, suggesting that shifts in labor demand explain the pattern, rather than increases in the supply of less-skilled and highly skilled immigrant workers. Immigrants in California, however, do contribute to the polarization to varying degrees, depending on race/ethnicity, gender, and location. The authors’ analysis of arrival cohort data suggests substantial immigrant upward mobility, mainly from lower to middle-range jobs in Los Angeles and from middle to higher range jobs in the San Francisco Bay Area. This does not mean that predictions based on racial/ethnic stratification theories are inaccurate, but it does suggest that such perspectives should be modified by taking into account the effects of newcomer status and the likelihood that immigrants may experience more upward mobility than many commentators presume.

Wage Inequality and Returns to Skill in Taiwan, 1978–96

Since 1980, income inequality has risen faster in Taiwan than in the United States. Inequality rose despite a rapid increase in the share of educated workers in the labour market that might have been expected to depress returns to education. Returns to a college education rose in Taiwan for all but the least experienced college graduates who were the most substitutable by the large new cohorts of college graduates. This pattern of changes in relative employment and relative wages is consistent with persistent shifts in relative demand toward skilled labour. The shifts are not sector-specific as might have been the case if shifts in trade flows were responsible for the shifts in relative wages. Growth of relative employment of more-educated workers occurred in all sectors of the economy, consistent with the hypothesis of skill-biased technical change. These results are similar to findings reported for OECD countries, suggesting that Taiwan has been exposed to the same types of skill-biased shifts in relative labour demand as in Europe and North America.

Increasing Earnings Inequality and Unemployment in Developed Countries: Markets, Institutions, and the “Unified Theory”

It is widely accepted that global forces of technology and trade have caused a profound shift in labor demand toward the most highly skilled, generating sharply rising earnings inequality in flexible labor markets (United States) and persistently high unemployment in rigid labor markets (Europe). This article critically assesses the evidence for this “Unified Theory.” It finds little compelling empirical support for either the skill-biased demand-shift explanation for high U.S. earnings inequality or the rigid labor markets explanation for high unemployment in Europe. This assessment challenges the policy orthodoxy of the 1990s that developed economies feature a strict inequality-unemployment trade-off and that policy options are therefore limited to skills enhancement in the United States and labor market deregulation in Europe. It is suggested that the theoretical dominance of the textbook supply/demand model has contributed to the neglect of labor market institutions for U.S. wage outcomes and tight macroeconomic policy for European unemployment.

Financial Market Imperfections, Labour Market Imperfections and Business Cycles

A Greenwald–Stiglitz (1993a) style rational expectations business cycle model is introduced in which uncorrelated productivity shocks or monetary shocks generate autocorrelated employment fluctuations due to financial constraints. The propagation mechanism is carefully modelled: because of capital market imperfections (only standard debt contracts are traded), firms' labour demand changes in response to changes in their balance‐sheet position; because of labour market imperfections (efficiency wages), employment and unemployment fluctuate in response to shifts in labour demand. The virtue of the model is its simplicity. Despite the fact that unemployment is endogenous, the dynamic behaviour of the model under rational expectations can be characterised analytically. JEL classification: E32

Trade and technological explanations for changes in sectoral labour demand in OECD economies

This paper sets out to establish the main determinants of variations in the demand for aggregate labour in manufacturing and service sectors (22) for a cross-section of OECD countries (14). A relatively new panel data set is employed in the analysis, the OECD's International Sectoral Data Base. Preliminary analysis revealed that the ‘within’ sector variation in the wage share dominated overall variation for most countries and time periods. A separate dynamic model was thus generated to explain the ‘within’ sector variation in the wage share. This model contained real wages, output, the capital stock, technological change (total factor productivity) and trade (the imports to value-added ratio) as independent variables. In addition the wage level was also interacted with these explanatory variables on the presumption that skill is positively correlated with the level of wages. Because of the potential for simultaneity bias, estimation was conducted by IV and OLS. The main findings were that the capital stock and technological change were the main determinants of shifts in labour demand. While some countries reported the trade variable as significant its influence was only of slight importance in most cases. The interaction terms proved to be significant in a large number of countries. Some evidence was found that capital and technological were complementary with skill. Overall it was found that broad agreement existed across countries in the factors which influence labour demand despite considerable differences in the cross-country nature of labour market institutions.

Nonlinearity in dynamic adjustment: Semiparametric estimation of panel labor supply

We estimate a semiparametric dynamic panel data model by the local linear kernel method and we interpret the slope of the nonparametric component function as a varying slope coefficient. Thus, the slope coefficient is a smooth, but otherwise unknown, function of some of the regressors. A Monte Carlo experiment is reported to examine the finite sample performance of the local linear estimator. We apply the estimation method to a labor supply equation for men from the triannual Survey of Income and Program Participation (SIPP). Specification tests based on the estimated labor supply elasticities, partial adjustment coefficients, and residuals demonstrate the improvements from a semiparametric partially linear model. Our empirical results point to a need by economists to revisit the issue of the speed of labor market adjustment to policy induced shifts in labor demand and to take more formal econometric account of heterogeneity in wage effects when studying the distributional consequences of tax reforms for labor supply earnings.

Skill Upgrading and Rigid Relative Wages: The Case of Danish Manufacturing

Relative wages have been remarkably rigid for the last two decades in Danish manufacturing despite large shifts in relative employment from unskilled labor towards skilled and educated labor. Assuming capital-skill complementarity and fixed relative wages as a consequence of labor market institutions, we argue that skill upgrading is more pronounced during downturns than upturns. This prediction is supported by a high positive and significant correlation between changes in relative employment of skilled labor and changes in the unemployment rate. Furthermore, we show that international outsourcing has played an important role in explaining the shift in relative labor demand.

The Impacts of Technology, Trade and Outsourcing on Employment and Labor Composition

Empirical studies of skill‐biased technological change are typically based on a simple production or cost function framework and limited information on technology and labor composition. In contrast, we simultaneously assess the impacts of trade, technology, and outsourcing on shifts in labor demand using a dynamic cost function framework and comprehensive measures of workforce composition and investment in technology. Our findings indicate that technological change has had the largest impact on changes in labor composition. However, the indirect impact of trade on shifts in employment augments its direct impact because trade stimulates computerization, which further exacerbates skill‐biased technological change.

Foreign Trade of Manufactures and Men and Women’s Employment and Earnings in Germany and Japan

Using factor content analysis, this paper provides estimates of the effects of manufacturing trade expansion on men and women's employment in Germany and Japan, with breakdowns by world, OECD, and non-OECD trade. Evidence is found that foreign trade expansion had a more negative effect on women's than men's manufacturing employment in Japan and a roughly equal effect in Germany, with the difference between the countries driven by non-OECD trade. In spite of this, demand shifted away from women's manufacturing employment in Germany after the early-1970s, for both the manufacturing sector as a whole and for manufacturing industries with high female shares of employment, while no such labor demand shifts occurred in Japan. In the face of these differences in labor demand and of very similar increases in female labor supply, male-female hourly wage differences narrowed in Germany and widened in Japan, for both manufacturing and non-agricultural employees. It is concluded that shifts in neither labor supply nor labor demand fit with observed trends of male-female wage differences in Germany and Japan.

ERRATUM

Using factor content analysis, this paper provides estimates of the effects of manufacturing trade expansion on men and women's employment in Germany and Japan, with breakdowns by world, OECD, and non-OECD trade. Evidence is found that foreign trade expansion had a more negative effect on women's than men's manufacturing employment in Japan and a roughly equal effect in Germany, with the difference between the countries driven by non-OECD trade. In spite of this, demand shifted away from women's manufacturing employment in Germany after the early-1970s, for both the manufacturing sector as a whole and for manufacturing industries with high female shares of employment, while no such labor demand shifts occurred in Japan. In the face of these differences in labor demand and of very similar increases in female labor supply, male-female hourly wage differences narrowed in Germany and widened in Japan, for both manufacturing and non-agricultural employees. It is concluded that shifts in neither labor supply nor labor demand fit with observed trends of male-female wage differences in Germany and Japan.

Unemployment, Wage Pressure and Sectoral Shifts: Permanent and Temporary Consequences of Intersectoral Shocks

The main purpose of this study is to examine the effect of allocative disturbances using Italian labour market data and a VECM (vector error correction model). In order to measure sectoral shifts in labour demand, we use Neumann-Topel's [Neumann, G.R., & Topel, R.H. (1991). Employment risk, diversification, and unemployment. Quarterly Journal of Economics 106:1341–1365] employment-based dispersion index. In searching for a restricted cointegration space, we set down, and identify a stylized version of the battle of the mark-ups model. Lilien [Lilien, D. (1982). Sectoral shifts and cyclical unemployment. Journal of Political Economy 90:777–793] argued that an important part of cyclical unemployment comes from permanent shifts in the composition of labour demand. Our findings emphasize that an important source of the persistence of unemployment comes from sectoral shifts.

The effects of structural change and economic liberalisation on gender wage differentials in South Korea and Taiwan

This paper investigates the sources of divergent trends in gender wage differentials in two important newly industrialised economies (NIEs), South Korean and Taiwan. As these economies have entered the post-industrial phase of development, gender wage differentials in Taiwan's manufacturing sector have widened, while in Korea they have narrowed. Decomposition analysis is used to broadly identify sources of change in gender wage differentials. Multivariate regression analysis is relied on to differentiate the impact on the gender wage gap of (1) macro-levels policies, (2) institutional factors, and (3) shifts in labour demand and supply. In addition to the predictable effects of several standard supply-side variables, in Taiwan physical capital mobility is found to have contributed to a wider gender earnings gap. Women's greater concentration in industries where capital is mobile may explain this result. The effects of capital mobility in Korea appears to differ, which may be due to the dissimilar characters of outward FDI from that country. Copyright 2000 by Oxford University Press.