Skilled-unskilled Wage Research Articles

Impact of Industrial BOTS on Employment, Skilled–Unskilled Wage Disparities and Talent Gap

Impact of Industrial BOTS on Employment, Skilled–Unskilled Wage Disparities and Talent Gap

Corporate structure, partial privatization, and wage inequality: Evidence from China's split share structure reform

This paper examines the effects of privatizing China's state-owned enterprises (SOEs) on wage distribution and the welfare of the economy. Privatizing profitable SOEs can narrow wage inequality and improve welfare, and it is however accompanied by a business dynamism effect that can widen the skilled-unskilled wage gap. Using China's split share structure reform in 2005 as a quasi-natural experiment, we empirically demonstrate for profitable SOEs a positive relationship between partial privatization and wage gap. Our findings are consistent with the plan to wind down unprofitable SOEs that would not survive without government subsidies.

International Factor Mobility, Rural Development Policies and Wage Inequality in the Presence of Industrial Goods as Intermediate Input in Agriculture

The paper develops a three-sector small open economy model with two final good sector and a non-trade good sector producing industrial intermediate goods in agriculture. It is shown that an increase in either type of labour endowment (capital endowment) raises (lowers) the unemployment rate of either type of labour if the scale elasticity of output is very low. On the other hand, if the industrial sector is more capital intensive than the agricultural sector and if efficiency functions of both types of labour are identical, then an increase in either type of labour endowment (capital endowment) lowers (raises) the skilled–unskilled wage ratio. However, the effect of a change in capital endowment on the Gini Coefficient of wage income distribution is ambiguous in sign.

Spillover effect of foreign direct investment on wage-inequality in Indian manufacturing industries

PurposeThe purpose of this paper is to study the spillover effects of foreign direct investment (FDI) on skilled–unskilled wage inequality in the Indian manufacturing industries.Design/methodology/approachThe authors show theoretically with a model of spillover that if foreign firms (receiving FDI) have a negative spillover effect on domestic firms (not receiving FDI), then the level of capital and skilled workers in the domestic firms falls down. Consequently, the authors conduct an empirical analysis by using system GMM estimation technique on the firm-level data of the Indian organised manufacturing sector.FindingsThe authors show that wage inequality worsens when there is negative spillover effects like competition spillover or skill spillover effect of FDI in India.Originality/valueTo the best of the authors’ knowledge, this is the first attempt to measure the various spillover effects of FDI on the wage inequality in the Indian manufacturing industries by using firm-level data.

Sectoral and regional impacts of trade liberalization on the skilled-unskilled wage-gap in Pakistan

This study explores the impacts of trade liberalization on the skilled-unskilled wage gap (henceforth SUSWG) by using the micro-level data of Pakistan. It is generally believed that when economies are liberalized, the SUSWG increases, especially in poor economies. Our study uses a two-step estimation methodology. We used two measures for SUSWG at sectoral and regional levels. We employed Oaxaca-Blinder decomposition for residual wage-gap, and log-wage-gap. For empirical (i.e., sectoral and regional) analysis, we employed Fixed effects (FE), Random effects (RE) and FE with Driscoll-Kraay Standard Errors (DKSEs), feasible generalized-least-squares (FGLS), and Panel-corrected Standard Errors (PCSE). We used sectoral panel data for sectoral analysis and provincial panel data for regional analysis, using the data from 1990 to 2005. Our study finds that protection rates and SUSWG are associated in Pakistan. Trade liberalization increases the SUSWG. The sectoral and regional analysis reveal similar findings on the impact of liberalization on SUSWG. Moreover, our results are robust and insensitive to various controls, measurement approaches (i.e., the log wage gap and the residual wage gap), and econometric techniques. We also find that lagged tariffs increase the SUSWG. Our findings will provide guidelines for policymakers to make future policies regarding trade liberalization and SUSWG in Pakistan.

Impact of Trade Liberalisation on Wage Inequality and Skill Formation: A Theoretical Analysis

We consider a small open economy with three sector and four factors. Agricultural sector produces output with unskilled labour and land. Manufacturing sector and skill formation sector produce output with skilled labour and capital. Skill formation sector transforms the unskilled labour into skilled labour. We also consider an extended version of this model where agricultural sector also uses capital. So capital is mobile between all three sectors. Both change in the price of manufacturing sector and capital stock alter skill formation in a similar direction. But change in the price of manufacturing sector leads to change in skilled–unskilled wage inequality in the same direction whereas due to change in capital stock it changes in opposite direction. In our extended study, where capital is mobile between all three sectors, the results of the basic model are unaltered. JEL Codes: F13, J31

Globalisation, COVID-19 and Income Distribution: A Theoretical Evaluation

The article makes a theoretical attempt to explain how different interconnected measures of globalisation—service led growth, tariff reform, agricultural trade liberalisation and capital account liberalisation—affect the skilled–unskilled wage disparity, sector-wise performance, income distribution and aggregate welfare of the economy. We pay attention to land augmenting technological progress as an essential ingredient of inclusive growth and discuss effects of COVID-19 as a supply shock. In so-doing, we construct a three-sector general equilibrium framework with an export-oriented service sector, a tariff-protected import competing manufacturing sector and an export-oriented traded agricultural sector. We find that service-led growth and tariff liberalisation shifts the income distribution in favour of the landed gentry and skilled labour. Agricultural trade liberalisation and capital account liberalisation also debilitate the income distribution. Land augmenting technological progress adversely impacts the manufacturing sector but benefits the other sectors. Following the outbreak of the pandemic, a fall in labour endowment and rise in transaction costs were observed. A decrease in the endowment of skilled labour reduces the production in service sector and increases the production of the manufactured commodity. The results are reversed when the endowment of unskilled labour decreases. An increase in transaction produces unfair outcome from the perspective of income distribution. In this context it becomes imperative to mention that, the construction of the three-sector general equilibrium framework is not new, and that the effects of the COVID-19 pandemic cannot be reduced to just a supply shock. COVID-19 has elements of both supply shock and demand shock, but in this article, we address supply side dimensions of COVID shock in conjunction with the effects of lockdown. In addition, we also demonstrate the robustness of our results to an alternate assumption on the structure of the model. JEL Codes: D50, F66, J31

Foreign Capital Inflow, Skilled-Unskilled Wage Gap, and Welfare in the Presence of the Informal Sector

This paper attempts to analyse the impact of trade liberalisation on the skilledunskilled wage gap and the level of welfare of developing countries, which are generally characterised by large “informal” labour markets. A neo-classical full-employment foursector model has been developed, where the informal sector produces either a final product or an intermediate product on subcontracting basis. Evidence shows that in either case, trade liberalisation, in the form of an increase in foreign capital inflow, widens the skilled-unskilled wage gap of the economy under some reasonable conditions. It also shows that as a result of an increase in the foreign capital inflow, the level of welfare of the economy increases, when the informal sector produces a final product. However, when the informal sector produces an intermediate product on subcontracting basis, the level of welfare of the economy falls.

Network Effect, Business Dynamism and Wage Inequality in a Sharing Economy

Abstract This paper examines the network effect on income distribution and social welfare in a sharing economy with rural-urban migration. A rise in the urban network effect via an increase of the number of users attracts capital to the urban sector. Urban skilled wage rises but rural unskilled wage falls. Due to rising costs from capital rental and skilled wage, urban firms exit if the demand elasticity of urban goods is large. This business-dynamism effect via firm exit mitigates the skilled-unskilled wage gap in the long run. Furthermore, rural-urban migration is mitigated from business dynamism by relocating capital to the rural sector. Network effects thus serves as a mitigator to cope with urban unemployment. In addition, the role of network effects on the effects of changes in the endowments are examined in the sharing economy.

Labor‐eliminating technology, wage inequality, and trade protectionism

AbstractRapid automation in manufacturing has raised pressing questions in public and policy discourse regarding the effects of labor‐eliminating technical progress in an industry. We address the implications of a labor‐eliminating technology adopted in manufacturing for factor price changes, the skilled–unskilled wage gap, and for trade policies intended to protect workers. Using an otherwise traditional multisector general equilibrium model, we derive the conditions under which a labor‐eliminating technology will be adopted in manufacturing, and show that such a technical change will increase the rate of return on capital, and decrease both skilled and unskilled labor wages. We derive conditions under which wage inequality increases, and most importantly, show that implementing protectionist trade policies in the industry experiencing labor‐eliminating technical progress will, paradoxically, hurt the workers that the policy is meant to protect.

Liberalizing Trade and Capital Flows and the Wage Gap: Does Sequencing Matter?

We consider a small open developing economy with presence of both final and intermediate goods where we analyze the impact of liberalizing trade and capital flows on wage inequality when such policies are undertaken in a sequence. Our findings suggest that when skilled sector is capital intensive relative to the unskilled sector, wage gap always increases independent of the sequence of reforms, but the extent of such increase may vary according to the chosen sequence. However, when unskilled intensive sector is more capital intensive, the impact of these reforms on skilled-unskilled wage gap is ambiguous. Later we also demonstrate the robustness of our results to alternative assumptions on the structure of the model.

The impact of environmental policy on wage inequality

AbstractConsider a small open Harris and Todaro's model. This paper analyzes the impact of the policy of environmental protection on skilled–unskilled wage inequality. We find that, in the economy with urban unemployment, if the elasticity of substitution between unskilled labor and pollution in the urban low‐skill sector is small (large) enough then a rise in the pollution tax will expand (narrow down) skilled–unskilled wage inequality. In addition, we prove that, in the economy with full employment, a rise in the pollution tax will raise the skilled–unskilled wage inequality, if the elasticity of substitution between unskilled labor and pollution is larger than that between capital and pollution in the urban low‐skill sector.

Informal stall business, income inequality, and welfare in a dual economy

We consider an emerging economy with a dual production structure, exemplified by China, and examine the income distribution and welfare effects of supporting and expanding the urban informal sector. In the short run, with a given number of urban manufacturing firms, a land-rent policy for supporting the informal sector narrows the wage inequality between skilled and unskilled labor, but in the long run the policy can widen the skilled-unskilled wage gap due to the free entry of manufacturing firms into the urban industrial sector. Conversely, the land-supply policy yields the opposite effects by increasing the wage gap in the short run while the gap is reducing in the long run with firm exit in the urban industrial sector. The analysis is extended to the scenario that skilled labor is interested in migrating to the informal sector. The policy implications of corporate social responsibility (CSR) applicable to both informal stall business and formal business can be deduced accordingly.

Non-traded goods, firm dynamics and wages in a service economy

By considering the term-of-trade and volume-of-trade effects, Jones (2012) examines the distributive effect in a competitive economy with non-traded goods. This paper reexamines the effect in an imperfectively competitive economy with firm dynamics. A rise in foreign demand can generate revenue and also mitigate market distortion, whereas skilled-unskilled wage inequality can be magnified or mitigated via the effect on firm entry or exit. Thus, how to achieve the trade-off among growth, inequality and the environment becomes an important task for government decision-makers, especially so during the pandemic of Covid-19.

Minimum wage, firm dynamics, and wage inequality: Theory and evidence​

This paper investigates the distributive and welfare impacts of increasing minimum wage in an economy with imperfect competition. In the short run without entry/exit of manufacturing firms, an increase in the urban minimum wage reduces the skilled–unskilled wage gap but worsens unemployment and welfare in the economy. In the long run, a higher minimum wage induces firms to exit the urban manufacturing sector, thereby releasing capital to the rural agricultural sector. This can yield double dividends by further narrowing wage inequality and improving social welfare. Empirical results based on data from 43 selected countries confirm our theoretical findings.

FINANCIAL DISCRIMINATION AND WAGE INEQUALITY IN CHINA

This paper investigates how financial discrimination influences skilled-unskilled wage inequality in China. In the basic model, we find that a reduction of financial discrimination will reduce skilled-unskilled wage inequality. In the extended model, we find that skilled-unskilled wage inequality will be narrowed down if and only if the substitution elasticity of unskilled labor and the intermediate product in the private sector is larger than that of the skilled labor and capital in the public sector. When considering the reality of China, we predict that a reduction of financial discrimination leads to the decline of wage inequality.

Wage Inequality and Unemployment in the Presence of Imported Intermediate Goods: A Theoretical Analysis

This article develops a static three-sector and five-factor competitive general equilibrium model of a small open economy: sector 1 is the rural agricultural sector, which produces products using informal or unorganised unskilled labour and land as inputs; sector 2 is the urban manufacturing, final-goods-producing sector that produces products with the help of unskilled labour, who get unionised wages, and capital; and sector 3 is the service sector, which uses skilled labour with formal wages, capital and sophisticated hi-technology-intensive imported intermediate goods produced abroad as inputs. We show that an exogenous increase in capital inflow or an increase in tariff on imported intermediate input reduces the skilled–unskilled wage inequality and lowers unemployment as long as the return to capital is unaltered and output adjustments absorb the entire shock of the two policies. Such capital inflow increases rural wage and reduces unemployment via the Harris Todaro mechanism but interestingly does not allow the skilled wage to increase. Thus, two critical policy targets can be accommodated at the same time. JEL Codes: F13, J31, J46

Redistribution and wage inequality

This paper explores how redistribution affects skilled-unskilled wage inequality through the general equilibrium approach. We analyze six redistribution policies, which includes redistribution from (1) skilled labor to unskilled labor, (2) unskilled labor to skilled labor, (3) capital owners to skilled labor, (4) capital owners to unskilled labor, (5) skilled labor to capital owners, and (6) unskilled labor to capital owners. We find that redistribution policy (1) will reduce wage inequality, while redistribution policy (2) will increase wage inequality. For redistribution policies (3)–(6), how redistribution affects wage inequality depends on the labor intensities of the skilled sector and the unskilled sector. The result shows that redistribution does not necessarily reduce skilled-unskilled wage inequality.

Skilled-unskilled wage gap without discrimination – the case of India

ABSTRACT Both skilled and unskilled workers are employed formally and informally in developing economies. However, workers employed informally are often discriminated – they receive lower returns to their individual characteristics compared to those employed formally. What would be the skilled-unskilled wage gap if there were no such discrimination in the labour market? We show that the with-discrimination wage gap is more if the unskilled workers are discriminated more in their employment-share weighted terms. We propose a methodology based on Oaxaca-Blinder decomposition technique to estimate the without-discrimination wage gap, apply it to four rounds of Indian NSSO employment data and find that (i) both types of workers face discrimination, and (ii) the without-discrimination wage gap is significantly less. We also check for the possibility of female workers getting discriminated more in informal employment.

Search Costs and Wage Inequality

Abstract This paper analyzes how search costs affect skilled-unskilled wage inequality. In the basic model, we find that an increase in skilled labor’s search costs will decrease wage inequality if the skilled labor market and the unskilled labor market are separated. In the extended model, our findings are as follows: (i) Even if there exists free entry into the unskilled labor market or the endogenous provision of public goods, an increase of search costs in the skilled labor market will decrease wage inequality; and (ii) if skilled search costs are negatively related to the skilled wage, wage inequality will be increased.