Decline In Wages Research Articles

People and Machines: A Look at the Evolving Relationship between Capital and Skill in Manufacturing 1860-1930 Using Immigration Shocks

This paper estimates the elasticity of substitution between capital and skill using variation across U.S. counties in immigration-induced skill-mix changes between 1860 and 1930. We find that capital began as a q-complement for skilled and unskilled workers, and then dramatically increased its relative complementary with skilled workers around 1890. Simulations of a parametric production function calibrated to our estimates imply the level of capital-skill complementarity after 1890 likely allowed the U.S. economy to absorb the large wave of less-skilled immigration with a modest decline in less-skilled relative wages. This would not have been possible under the older production technology.

Are Starting Wages Reduced by an Insurance Premium for Preventing Wage Decline? Testing the Prediction of Harris and Holmstrom (1982)

In the model of Harris and Holmstrom (1982) workers pay an insurance premium to prevent a wage decline. As employers are unable to assess the ability of a labour market entrant, they would offer a wage equal to expected productivity of the worker's category and adjust it with unfolding information on true individual productivity. Workers are willing to accept a reduction in starting wage to prevent a reduction in their wage when their productivity is revealed to be below the expected value for their category. While Harris and Holmstrom indicate crystal clear how the prediction can be tested, their prescription has never been applied. Using Portuguese data covering virtually the entire labour force, we find that the prediction is unequivocally rejected. We interpret the results instead as confirmation of earlier results showing that workers are compensated for the financial risk of investing in an education.

Why Are the Relative Wages of Immigrants Declining? A Distributional Approach

The authors show that the decline in the relative wages of immigrants in Canada is far from homogeneous across the wage distribution. The well-documented decline in the mean wage gap between immigrants and Canadian-born workers hides a much larger decline at the low end of the wage distribution, while the gap hardly changed at the top end of the distribution. Using standard OLS regressions and unconditional quantile regressions, the authors show that both the changes in the mean wage gap and in the gap at different quantiles are well explained by standard factors such as experience, education, and country of origin of immigrants. Interestingly, an important source of change in the wages of immigrants relative to the Canadian born is the aging of the baby boom generation, which has resulted in a relative increase in the labor market experience, and thus in the wages, of Canadian-born workers relative to immigrants.

Undocumented Migration and the Wages of Mexican Immigrants.

Prior work has documented the remarkable decline in the real wages of Mexican immigrant workers in the United States over the past several decades. Although some of this trend might be attributable to the changing characteristics of the migrants themselves, we argue that a more important change was the circumstances under within Mexican immigrants competed for jobs in the United States. After 1986 a growing share of Mexican immigrants were undocumented, discrimination against them was mandated by federal law, and enforcement efforts rose in intensity. We combined data from the Mexican Migration Project with independent estimates of the percentage undocumented among Mexicans living in the United States to estimate a series of regression models to test this hypothesis. Controlling for individual characteristics helps to explain the decline in the wages of immigrants, but does not eliminate the trend, which is only explained fully when the percentage undocumented is added to the model. A key date is 1986, confirmed by a Oaxaca-Blinder decomposition analysis, when undocumented hiring was criminalized and undocumented migration revived after IRCA's legalization programs ended. As the percentage undocumented rose to new heights in the face of employer sanctions, immigrant wages fell below what we would have observed under the former policy regime. Using newly available data from Warren and Warren (2013), we examined how variation in the percentage undocumented by state and year from 1990 through 2009 affected immigrant wages and confirmed a strong negative effect, but the addition of an interaction term to the model indicated that the negative effect was confined largely to undocumented migrants, whose wage penalty rose from 8% to 18% as the percentage undocumented rose from its observed minimum to maximum.

Redistributive Implications of the Great Recession: The old lose a lot and the young might gain

The recent economic downturn which occurred between the middle of 2007 and the first quarter of 2009 (the so-called Great Recession) has been the most severe since the Great Depression. Recently Glover, Heathcote, Krueger, and Rios-Rull (2011), among others, document some salient features about the Great Recession: Asset prices decline more than twice as much as wages, and older households suffer large welfare losses while young households lose less and might even benefit. In this paper, we construct stochastic general equilibrium models in which households are subject to aggregate shocks that affect both wages and asset prices. In our models, the elasticity which measures the magnitude of the decline in asset prices relative to output is shown to be greater than one, if the coefficient of relative risk aversion is greater than one. The model also predicts that the younger cohorts fare better than older cohorts when the equilibrium decline in asset prices is large relative to the decline in wages. Asset price declines hurt the old, who rely on asset sales to finance consumption, but benefit the young, who purchase assets at depressed prices. In the three-period overlappinggenerations economy, there exists a possibility for the young to be better off being born in a recession rather than in normal times. This upshot depends on the wealth distribution.

Won with Blood: Archaeology and Labor’s Struggle

Traditionally when Americans went to work they expected that they would earn a reasonable wage, work in a safe environment, put in a 40 h week, collect paid vacation days, earn sick leave, have the right to organize and receive health and retirement benefits. Increasingly, however, fewer and fewer workers receive these rights and today only a minority of people in the United States work under these conditions. The decline in real wages, benefits, rights and safety experienced by twenty-first century American workers has correlated with a decline in organized labor. Corporations and the right have assailed unions to erode worker’s rights and “increase competitiveness” in a globalized, neo-liberal, capitalist, world. The attacks on unions spring from a monstrous lie, that politicians and corporations gave labor these benefits and thus workers no longer need unions. On the battlefield of public policy, these assaults on organized labor work in a fundamentally ideological way that calls the continued existence of unions into question. In this paper, I will discuss how archaeological studies of labor’s struggle can reveal that contrary to the monstrous lie, workers and their families won worker’s rights with blood and that solidarity and organization remain essential to maintain these rights. The paper begins with the present state of labor’s struggle and looks to the past to consider its preconditions. Archaeologists have studied strikes, the lived experience of working class life and class war to study history backwards and these studies contribute to the labor’s struggle for the future.

What Constitutes Poverty in Myanmar? The Social Work Appraisal

This paper briefly describes the general poverty situation in Myanmar, factors that partly constitute poverty in Myanmar, and social work and poverty in Myanmar. Myanmar with a population of over 60 million and at 676,578 km2 (Burma) is the largest country of mainland Southeast Asian Region, and second largest overall in size after Indonesia. It is a country that is rich in natural resources including precious stones, oil, and natural gas, however, Myanmar is still one of the poorest countries and majority of its citizens are still living in poverty and do not enjoy the benefit of their rich natural resources even under the newly introduced political reforms. There are differences in urban and rural poverty. The urban people have more money than the rural people but rural people on subsistence agriculture have more food but no hard cash. It is argued in this paper that poverty in Myanmar is mainly caused by the mismanagement of resources and inefficiency of governance, corruption and dishonesty in resource allocations, insecurities of social and economic conditions to the people. The 2008 Myanmar Constitution describes the protection and rights of the citizens for property ownership, education and health. The newly adopted pro-market reforms have led to cases of land seizures from farmers for mining and industrial development, decline in wages in real terms for factory workers with resultant social problems in many areas in the country. The challenge for the future leaders and policy makers is whether it is the constitution that needs to be changed or improved or improve the enforcement of the current one to improve the poverty situation for the people of Myanmar.

Impact of Chinese growth and trade on labor in developed countries

This paper examines the impacts of growth in China's economy and trade on the skill premium of labor in developed countries. We utilize a unique global dataset that disaggregates workers by occupations to identify impacts across labor categories with different skill sets, complementing the widely used GTAP Data Base in the CGE framework offered by the GTAP model. To study the impacts of China's fast-paced growth, we model the counterfactual, i.e., what if China grew and opened at a more modest rate; we then compare this baseline with China's actual growth. Results indicate that a strong rise in manufacturing exports from China to the US impacts output and employment in the US. The US shifts its production away from light manufacturing sectors to more service-oriented sectors that also tend to engage higher skilled labor. There is a small decrease in the real wages of unskilled labor and a rise in the real wages of skilled labor. Interestingly, not all categories of unskilled labor lose, rather those that are more directly linked with manufacturing sectors are impacted; unskilled ‘service and shop workers’ and the unskilled ‘agricultural workers, machine operators, assemblers, craft workers, and others’ observe a small decline in real wages, while the impact on unskilled ‘clerks’ is insignificant. For all categories of skilled workers, there is an increase in real wages primarily driven by the shift in production to services and high-skilled labor intensive categories, resulting in the rising skill premium. Hence disaggregating the labor data provides greater depth on the understanding of the differential impacts on domestic workers resulting from trade, and thereby guides policy on how these differential impacts can be smoothed through redistribution of benefits. Consistent with other study findings, there is a positive impact on overall growth and welfare in the US, EU and Australasia.

Offshoring, Mismatch, and Labor Market Outcomes

We study the role of labor market mismatch in the adjustment to a trade liberalization that results in the offshoring of high-tech production. Our model features two-sided heterogeneity in the labor market: high- and low-skilled workers are matched in a frictional labor market with high- and low-tech firms. Mismatch employment occurs when high-skilled workers choose to accept a less desirable job in the low-tech industry. The main result is that perhaps counter-intuitively this type of job displacement is actually beneficial for the labor market in the country doing the offshoring. Mismatch allows the economy to reallocate domestic high-skilled labor across both high- and low-tech industries. In doing so, mismatch dampens both the increase in the aggregate unemployment rate and the decline in aggregate wages that come as a consequence of shifting domestic production abroad.

Regional Determinants of Average Wage in Romania

The economic crisis has conveyed a new set of challenges for the labour market, one of its most socially negative effects being the decline in real wages. In this context our paper attempts to explain the wage determinants in Romania from a territorial perspective. We examine the spatial correlation between real wage earnings and various regional characteristics in the framework of a panel data model. This technique allows controlling for region-specific differences in the factors of influence included in the wage model. We test the hypothesis that average regional wages are positively related to the economic performance of the regions. The empirical analysis has covered the 1995-2010 period and our empirical estimations confirmed the significant role of the development level, captured by GDP/capita, on regional wage determination in Romania on the long-run.

Becky Pettit and Jennifer L. Hook: Gendered Tradeoffs. Family, Social Policy, and Economic Inequality in Twenty-One Countries

In Gendered Tradeoffs, Becky Pettit and Jennifer L. Hook attempt to unveil the paradoxical effects of seemingly egalitarian social policies in 21 countries. The seven chapters, which follow an introductory section, integrate life course theories with microeconomic and comparative explanations for gender inequality among women, men, and families in the home and the workplace. The authors rely on data spanning the years 1969–2000 from the Luxembourg Income Study (LIS), which consists of a collection of over hundred household surveys. After decades of scholars proclaiming the positive effects of social policies, the authors trace the unintended consequences of employment and work–family policies on gender inequality within, and across, countries. These include a decline in work hours and female wages through reduced female labor force participation, the formation of non-egalitarian gender roles and domestic responsibilities, and tradeoffs in long-term economic security. The authors examine gender inequalities in terms of employment and hours worked (Chap. 3, 4, and 7), occupation (Chap. 5), and pay (Chap. 6). They ask if there is a tradeoff between women’s inclusion in the labor market and gender equality within it. The main asset of this book is the integration of cross-national variability in economic outcomes over the life course (e.g., Chap. 3, p. 50, or Chap. 5, p. 99), as well as an analysis of variability in women’s economic standing across twenty-one countries. Each chapter contains a special ‘‘spotlight section’’ using the United States and Germany as examples of different types of policies (e.g., Chap. 3, p. 59, or Chap. 5, p. 114). Chapter 7

Human Capital Loss in Corporate Bankruptcy

This paper quantifies the “human costs of bankruptcy” by estimating employee wage losses induced by the bankruptcy filing of employers using employee-employer matched data from the U.S. Census Bureau’s LEHD program. We find that employee wages begin to deteriorate one year prior to bankruptcy. One year after bankruptcy, the magnitude of the decline in annual wages is 30% of pre-bankruptcy wages. The decrease in wages persists (at least) for five years post-bankruptcy. The present value of wage losses summed up to five years after bankruptcy amounts to 29-49% of the average pre-bankruptcy market value of firm. Furthermore, we find that the ex-ante wage premium to compensate for the ex-post wage loss due to bankruptcy can be of similar magnitude with that of the tax benefits of debt.

Regional Effects of Trade Reform: What is the Correct Measure of Liberalization?

A growing body of research examines the regional effects of trade liberalization using a weighted average of trade policy changes across industries. This paper develops a specific-factors model of regional economies that provides a theoretical foundation for this intuitively appealing empirical approach and also provides guidance on treatment of the nontraded sector. In the context of Brazil's early 1990s trade liberalization, I find that regions facing a 10 percentage point larger liberalization-induced price decline experienced a 4 percentage point larger wage decline. The results also confirm the empirical relevance of appropriately dealing with the nontraded sector. (JEL F13, F16, O19, O24)

DO PUBLIC OWNERSHIP AND LACK OF COMPETITION MATTER FOR WAGES AND EMPLOYMENT? EVIDENCE FROM PERSONNEL RECORDS OF A PRIVATIZED FIRM

Do public sector firm ownership and lack of competition matter for wages and employment? To address this question, we consider a large public-sector company that is privatized. Using personnel records, we find employment contract liberalization to generate relative wage losses for older, high-tenure, low-skilled, part-time workers, permanent residents, and women. Employment reductions mostly affect the same groups experiencing a wage decline. Overall, wage liberalization leads to an increase in wage inequality of between |$6\% $| and |$9\% $|⁠, which—if applied to the whole public sector—would lead to a |$52\% $| to |$76\% $| closure of the “inequality gap” between the private and public sectors in Europe. Our results suggest that differences between public- and private-sector wage structures found in descriptive studies are to a large extent causal rather than the result of selection into these sectors and that public sector employment and career path regulations limit a firm’s ability to maintain a competitive workforce.

Rivalry between Shareholder Value and Large Size in the Global Economy

I show that in a global market for corporate control straightforward profit maximization, not maximizing a weighted sum of profits and sales, is the dominant solution of the game if management assigns decisions on output and the input of productive factors to different departments within the firm. In this framework the cost function depends on the goal. Average costs decline either by offering lower wage rates or by raising total factor productivity. This modeling helps explain recent developments in industry, such as the pursuit of shareholder value and also the decline of wages and structural unemployment.

Europäischer Tarifbericht des WSI – 2012/2013

WSI-Mitteilungen , Seite 588 - 597

Human Capital Loss in Corporate Bankruptcy

This paper quantifies the “human costs of bankruptcy” by estimating employee wage losses induced by the bankruptcy filing of employers using employee-employer matched data from the U.S. Census Bureau’s LEHD program. We find that employee wages begin to deteriorate one year prior to bankruptcy. One year after bankruptcy, the magnitude of the decline in annual wages is 30% of pre-bankruptcy wages. The decrease in wages persists (at least) for five years post-bankruptcy. The present value of wage losses summed up to five years after bankruptcy amounts to 29-49% of the average pre-bankruptcy market value of firm. Furthermore, we find that the ex-ante wage premium to compensate for the ex-post wage loss due to bankruptcy can be of similar magnitude with that of the tax benefits of debt.

“This Right Here Is All About Living”: Communicating the “Common Sense” About Home Stability Through CBPR and Photovoice

Homelessness remains a major problem in the United States as a result of urban deprivation, economic decline, a rise in housing costs, and a decline in blue-collar wages. Meanwhile, the dominant discourses around homelessness tend to frame the matter in terms of individual deviance rather than structural impediments. This study utilizes Community-Based Participatory Research and the photovoice method to articulate what a small number of “successfully home stable individuals” attribute to helping them to remain home stable as well as those factors that challenge this situation. The study analyzes how these attributions challenge the “common sense” about homelessness by refiguring the concept as a reintegration process with manifold causes and paths into and out of episodic home instability and giving voice to formerly homeless individuals who are successfully navigating reintegration into housed society.

The Malthusian intermezzo: Women's wages and human capital formation between the late Middle Ages and the demographic transition of the 19th century

The paper offers a new explanation for ‘the great conundrum’, the acceleration of population growth in England in the second half of the 18th century. It is argued that it was not only population growth that was ‘different’ in England, but the stagnation of the rise of literacy and of human capital in general, seems to be an anomaly of this period. This ‘conundrum’ has been explained in the following way. It is demonstrated that in England the gender wage gap increased a lot during the early modern period, which was caused by: (a) the switch from post Black Death labour scarcity to labour surplus, which in particular harmed the economic position of women, and (b) changes in the structure of agriculture, leading to the rise of large-scale, capital intensive and labour extensive farms, which had a very limited demand for female (wage) labour. This is also suggested by the fact that on the Continent (in the Netherlands) a much smaller decline of female wages occurred, because there family farms continued to be quite important. Moreover, the decline of English wages had important effects on its demographic development. It helps to explain the decline of the average age of marriage of in particular women between 1600 and 1800, and the related increase in fertility that occurred in this period — resulting in a much faster rate of population growth after 1750 than elsewhere in Western-Europe. It also helps to explain the stagnation in human capital formation that occurred during the 18th and early 19th century — again a feature peculiar for the English development in these years. The explanation of ‘the great conundrum’ is therefore intimately linked to the changing position of women on the labour market and within marriage.

Essays in Corporate Finance and Labor Economics

My dissertation is composed of three essays addressing the following three questions: First, how do mergers and acquisitions create value? Second, what role does labor union play in affecting merger outcomes? Third, how do CEOs' career concerns impact firms' restructuring decisions? In the first essay, I investigate the underlying sources of gains from takeovers. Using plant-level data from the U.S. Census Bureau, I show that acquirers significantly reduce investments, wages, and employment in target plants, though output is unchanged relative to comparable plants. Acquirers also aggressively shut down target plants. Moreover, these changes help explain the merging firms' announcement returns. The total announcement returns to the combined firm are driven by improvements in the target firm's productivity. Also, targets with greater post-takeover productivity improvements receive higher premiums from acquirers. These results provide some of the first empirical evidence on the direct relation between productivity, labor, and stock returns in the context of takeovers. In the second essay, I examine the role of labor unions in takeovers. I show that gains to merging firms' shareholders are positively associated with target's union membership. Also, target's shareholders capture a larger share of joint gains when the target's union is weaker. I then analyze the wage and employment outcomes for a large sample of firms that were acquired between 1981 and 2002. I find that after a takeover, target establishments exhibit net decline in wages and employment, especially when target's union membership is high. These results highlight the role of takeovers in unlocking the economic rents previously captured by labor unions. In the third essay, I compare how career concerns affect the real investment decisions of younger and older CEOs. I show that younger CEOs undertake more active investment activities. They are more likely to enter new lines of business, as well as exit existing lines of business. They prefer growth through acquisitions, while older CEOs prefer to build new plants. This busier investment style of the younger CEOs appears to be relatively successful since younger CEOs are associated with higher plant-level efficiency compared to older CEOs.