Wage Determination Research Articles

The role of trade and offshoring in the determination of relative wages and child labour

ABSTRACTIncorporating family decisions in a two-period model of the world economy, we predict that trade liberalization raises the skill premium and reduces child labour in developing countries where the adult labour force is sufficiently well educated to attract production activities from abroad that will increase the demand for skilled relative to unskilled labour. Elsewhere, liberalization will reduce the skill premium, but it will not necessarily raise child labour. Our prediction is not rejected by the data, and it explains why child labour is negatively associated with trade openness in those developing countries where the labour force was relatively well educated when the liberalization took place, but not elsewhere.

Role of Individual Social Capital in Wage Determination: Evidence from China

The present study examines the role of individual‐level social capital in workers’ wage determination in a Nash‐bargaining wage model using Chinese micro‐level data. The study finds a significant contribution of individual‐specific social capital to the wage level. In particular, larger individual social networks and workers’ positive attitudes toward social capital significantly increase the wage level. Moreover, the effect of social capital on the wage level is much larger for men than for women. The results indicate that construction of individual social capital could increase workers’ wages. However, efforts are needed to reduce the unequal contributions of social capital between men and women.

Wages and wage determination

Wages and wage determination

India’s fragile industrial landscape and worker’s remuneration: some unanswered paradoxes

Using Annual Survey of Industries (ASI) data, this paper seeks to provide estimates of rising Proprietorship (IP) in the Industrial sector in India and attempts to link the ownership pattern of industrial enterprises to job creation and wages paid. Evidence since 1984–85 shows that while Proprietorship enterprises have systematically increased in terms of number of factories, the employment generation has not increased at the same pace. They are labour intensive enterprises, yet in terms of size of employment, they are relatively small. This is in sharp contrast to the nature of Industrial Development in the Corporate Sector. The paper conducted Time-series analysis of the determinants of wages for the past thirty years. The evaluation of the Proprietorship enterprises shows the nature of enterprise formation and remuneration to the workers therein. The paper concludes that even as the corporate sector has been experiencing stagnation in terms of employment generation, the wage indexation to statutory levels has protected workers employed therein. In sharp contrast, the rise in the Proprietorship enterprises reflects the growing number of micro-enterprises that are riddled with low capital investments, poor remuneration and worsening employment conditions of vast proportion of the workforce. Thus, the composition of industries matters in employment creation and the wages paid.

Minimum Wage and the Working Poor in Nigeria: Is there a Link?

In the last two decades, the effectiveness of the minimum wage as a poverty-reducing tool has come under criticism. It has been observed that a weak link exists between poor workers and minimum wage. Similarly, in countries such as Nigeria, minimum wage determination is not indexed to price movements, thus nominal wage changes do not adjust for price changes. The consequence of this is that, the worth of minimum wage is rapidly eroded. Few studies exist on this topic in Nigeria, despite its relevance for policy guidance. This study therefore adds to the literature by examining the link between minimum wage and poverty status of its intended beneficiaries in Nigeria, using 2004 and 2009 household survey data. Findings show that, although the minimum wage is targeted at the poor-working group, the link is not strong. More importantly, the minimum wage policy in Nigeria has a marginal poverty-reducing effect. Plausible explanations for the marginal effect are the poor targeting of minimum wage workers and the rapidly declining value of nominal minimum wages overtime. Gradual and regular adjustments of the minimum wage to the consumer price index are recommended, as it will help preserve the worth of the wages.

Alcohol use and the wage returns to education and work experience.

Despite a widely held belief that alcohol use should negatively impact wages, much of the literature on the topic suggests a positive relationship between nonproblematic alcohol use and wages. Studies on the effect of alcohol use on educational attainment have also failed to find a consistent, negative effect of alcohol use on years of education. Thus, the connections between alcohol use, human capital, and wages remain a topic of debate in the literature. In this study, we use the 1997 cohort of the National Longitudinal Survey of Youth to estimate a theoretical model of wage determination that links alcohol use to wages via human capital. We find that nonbinge drinking is associated with lower wage returns to education whereas binge drinking is associated with increased wage returns to both education and work experience. We interpret these counterintuitive results as evidence that alcohol use affects wages through both the allocative and productive efficiency of human capital formation and that these effects operate in offsetting directions. We suggest that alcohol control policies should be more nuanced to target alcohol consumption in the contexts within which it causes harm.

Prinsip Pengawasan Hubungan Kerja Di Bidang Pengupahan Dalam Rangka Perlindungan Pekerja/Buruh

Surveillance the enforcement at the protection of workers in the area of wages in order to ensure the rights and obligations of workers by employers, the results of the review to the future can be used as a material in reorienting legislation exists and realized in the policy formulation in legal reform so that the future is no longer the norm disharmony in efforts to enforce the law, which it will be directly proportional to the effectiveness of law enforcement, especially in the context of supervision in the area of wages laborers / workers. The conclusion of this article are in currently reform needs to be rethought and conducted a review of the minimum wage as one form of wage protection. Determination of wages and periodic wage stage increase in is in need of change. The new concept as an alternative to minimum wage legislation is needed in after reformation period is one of with strengthen supervision in employment particularly in the area of wages

Obesity-based labour market discrimination in South Africa: a dynamic panel analysis

Apart from obesity-related health care costs in South Africa, obesity is also seen to have far-reaching effects that seep into labour market outcomes. Using National Income Dynamics Survey (NIDS) panel data, this study aims to examine the relationship between body mass index (BMI) and employment status as well as wage levels of individuals to identify the optimal level of BMI from the labour market perspective in South Africa. Thereafter, the article uses ethnicity-backed obesity thresholds to measure the discrimination obese individuals face on the probability of becoming employed and their wages earned once employed. The econometric analysis uses the OLS probit and tobit regression models as the starting point for analysis. However due to issues of reverse causality, the analysis thereafter utilises a system GMM model to take endogeneity into account. A further Blinder-Oaxaca decomposition technique is used to derive the discrimination component in the system GMM regressions for obese and non-obese individuals. Finallly, gender-specific analysis is undertaken to investigate whether obesity-related discrimination differs between males and females. The relationship between BMI and employment probability/wages is seen to be non-linear with increases in BMI leading to an increase in the probability of employment and wages up to a threshold beyond which this relationship becomes negative. Based on the system GMM estimation, the optimal BMI for employment probability and wage determination is identified as 30 and 27 respectively. Blinder-Oaxaca estimates show that 90% of the gap in employment status is accounted for by obesity-related discrimination. With regard to wages, obesity leads to a discrimination of 186%. Gen1der-specific Oaxaca analysis found that obese females face discrimination in employment probability of 109% compared to a negative discrimination of −184% for obese males. In determining wages, employed obese females face discrimination of around 73% whereas the discrimination endured by employed obese males is half of this, at 35%. Our findings reiterate that increasingly obesity has adverse labour market implications. Obesity-based discrimination exists in South Africa and is predominantly faced by obese women entering the workplace and continues in the wage determination of both men and women.

The NFL Salary Cap and Veteran Players’ Salaries

The salary structure and process of wage determination in the American National Football League (NFL) is perhaps unique among professional sports: contracts are not guaranteed, careers tend to be very short, and the league operates under a salary cap that limits teams’ payrolls. Thus, while a fairly well-defined set of performance metrics exists for most professional football players, the usual relationship between measured performance and compensation—i.e. higher productivity translates into higher pay—may be blurred, empirically observable, or even nonexistent. This paper investigates this issue using a four-year panel of veteran professional football players. Our analysis suggests that although performance plays a role in determining salaries in the NFL, experience, durability, and mobility are the most important factors veteran player compensation.

How Does the Preference to Work in Family Firms Depend on National Labor Market Institutions?

Family firms need to attract talented non-family employees to stay competitive. We argue that the role of the image of family firms as employers and the preference to work in family firms depend on the specific labor market context. Using a multi-level, cross-country dataset of 12,150 individuals in 40 countries, we find that hiring and firing practices, the degree of employer-employee cooperation, and the flexibility of wage determination influence the individual prefer-ence for working in family firms. Our paper contributes to prior research by introducing a labor market institutions perspective and has practical implications for family firms seeking to hire new employees.

The dynamics of profits and wages: technology, offshoring and demand

ABSTRACTThis article explores the impact of innovation, offshoring and demand on profits and wage dynamics. Empirical analysis is performed on a panel of 37 industries (1995–2010) across five European countries. Our identification strategy relies on instrumental variables and recently proposed heteroskedasticity-based instruments. Additionally, we perform sensitivity analysis to account for omitted variables bias. The main results of our study can be summed up in three points. First, it highlights the contrasting effects of R&D and offshoring as wage determinants. Second, it shows that external demand is a key variable driving profits growth. Third, the categorisation of workers according to skill level shows that high-skilled workers are favoured by both innovation and offshoring, offshoring exerts downward pressure primarily on low-skilled wages and profits are positively correlated with high-skill wages, negatively correlated with medium-skill wages and not correlated with low-skill wages.

The Effect of Heterogeneous Wage Contracts on Macroeconomic Volatility in a Financially Fragile Economy

I build a small open economy (SOE) dynamic stochastic general equilibrium (DSGE) model to investigate the effect of a heterogeneous wage contract between regular and temporary workers on a macroeconomic volatility in a financially fragile economy. The imperfect financial market condition is captured by a quadratic financial adjustment cost for borrowing foreign assets, and the labor market friction is captured by a Nash bargaining process which is only available to the regular workers when they negotiate their wages with the firms while the temporary workers are given their wage which simply equals the marginal cost. As a result of impulse responses to a domestic productivity shock, the higher elasticity of substitution between two types of workers and the lower weight on the regular workers in the firm’s production process induce the higher volatilities in most variables. This is reasoned that the higher substitutability creates more volatile wage determination process while the lower share of the regular workers weakens their Nash bargaining power in the contract process.

Should managerial delegation contracts be made before or after union wage setting? A game‐theoretic analysis

This paper analyzes a multiple‐stage game in which, at the final stage, two (managerial) firms compete over quantities in the product market. Prior to this stage, firm‐specific unions set the workers' wages, while the owners of both firms hire managers and provide them with incentive contracts. Owners can freely decide to arrange the managerial contract before or after the (non‐managerial) wage determination stage. Hence, the endogenous choice of the incentive contract stage is derived. The possibility of multiple equilibria arises, where both owners choose managerial contracts before or after unions' wage setting, crucially depending on unions' preferences. Such results also prove to be true for a remarkable degree of asymmetry in preferences over wages vis‐à‐vis employment across unions.

The Wage Gap Between Main Contractors and Subcontractors and the Determinants of Wage

The Wage Gap Between Main Contractors and Subcontractors and the Determinants of Wage

The Effect of Heterogeneous Wage Contracts on Macroeconomic Volatility in a Financially Fragile Economy

I build a small open economy (SOE) dynamic stochastic general equilibrium (DSGE) model to investigate the effect of a heterogeneous wage contract between regular and temporary workers on a macroeconomic volatility in a financially fragile economy. The imperfect financial market condition is captured by a quadratic financial adjustment cost for borrowing foreign assets, and the labor market friction is captured by a Nash bargaining process which is only available to the regular workers when they negotiate their wages with the firms while the temporary workers are given their wage which simply equals the marginal cost. As a result of impulse responses to a domestic productivity shock, the higher elasticity of substitution between two types of workers and the lower weight on the regular workers in the firm’s production process induce the higher volatilities in most variables. This is reasoned that the higher substitutability creates more volatile wage determination process while the lower share of the regular workers weakens their Nash bargaining power in the contract process.

The Institutionalised Undervaluation of Women’s Work: The Case of Local Government Sector Collective Agreements

This article analyses the role of collective agreements in institutionalising and legitimising the undervaluation of work conducted by women. The undervaluation of women’s work has been identified as one of the main causes of the gender pay gap. Despite this, it continues to escape many of the policy measures on gender pay equity that focus on establishing wage discrimination. The Finnish local government sector provides an interesting case for research on undervaluation, as it has several collective agreements and several wage determination systems for different employee groups. However, a local authority is a single employer, and is obliged by law to treat all employees equally. Although the processes of wage determination vary across different national contexts, institutionalised undervaluation is very likely among highly feminised jobs and occupations worldwide. This article sees wages as social practices that reflect and are shaped by institutional, societal and historical contexts.

Market Power, Productivity and Wage Determination: Ukrainian Firm Level Evidence

We develop a theoretical model that explains intra-industry distribution of wages with variation in market power of firms, along with traditional variation in productivity. The model predicts that the outcome of the bargaining game between the firm owners and employees depends crucially on the demand side characteristics. As a result, variation in the firms’ markups serves as an important determinant of wage distribution. We provide micro foundations for this channel of wage determination. We test the model on the sample of Ukrainian firm-level data. We find that the average wage rises with an increase of the firm productivity, but falls with an increase of the market power. These effects are roughly of the same size in absolute value; the results are statistically significant and robust to various model specifications estimated at the firm or industry level.

Formation of Wages in Kazakhstan and the Return on Education

The article deals with the development of the theory of human capital, including approaches to quantifying its value and the return on investment in human capital. The results of research by the authors of factors affecting wages in Kazakhstan are presented. The econometric tool used in analyzing the determinants of wages is not only quantifiable variables, but also a special kind of variables known as ‘dummy variables’. A number of econometric problems arising in the practical application of the model of human capital have been studied. Among them, the problems of measuring data and endogenous are most prominent, due to the impact of an unobservable variable, such as a person's ability. The analysis of the return on education and professional experience is described, both at the national and regional and sector levels, the gender aspect of the formation of wages are considered.

Unemployment insurance and reservation wages: Evidence from administrative data

Although the reservation wage plays a central role in job search models, empirical evidence on the determinants of reservation wages, including key policy variables such as unemployment insurance (UI), is scarce. In France, unemployed people must declare their reservation wage to the Public Employment Service when they register to claim UI benefits. We take advantage of these rich French administrative data and of a reform of UI rules to estimate the effect of the Potential Benefit Duration (PBD) on reservation wages and on other dimensions of job selectivity, using a difference-in-difference strategy. We cannot reject that the elasticity of the reservation wage with respect to PBD is zero. Our results are precise and we can rule out elasticities larger than 0.006. Furthermore, we do not find any significant effects of PBD on the desired number of hours, duration of labor contract and commuting time/distance. The estimated elasticity of actual benefit duration with respect to PBD of 0.3 is in line with the consensus in the literature. Exploiting a Regression Discontinuity Design as an alternative identification strategy, we find similar results.

Economics of Minimum Wage Legislations—Lessons for Emerging Market Economies

Philosophical bases for the origin for minimum wage legislation are implicit in the concepts of subsistence and natural wages evolved by classical economists.11 The earlier version of this article was presented in the annual conference organized by The Indian Society of Labour Economics, held at IIT Guwahati in November 2016. The comments given by the participants of the conference have been incorporated. However, conceptualization of the working of market, evolved by microeconomic theory, propounded that minimum wage law distorts working of the labor market. These alternative formulations give impression that this law is politically correct but not based on sound economics. Since the beginning of the process of economic reforms in most of the emerging market economies, some of the scholars, following the strand of thought advocated by microeconomic theory, are arguing for the amendments in minimum wage legislations to make the labor market flexible. In the present article, an attempt has been made to evaluate the appropriateness of this strand of thought with the help of existing theoretical and empirical studies. The evaluation clearly shows that strand of thought based on microeconomic theory is not appropriate. This is because demand of the factor of production in an economy is not based on the price of the factor alone. It also depends on price of substitute factor and the growth rate of the economy. Moreover, minimum wage legislations act as determinant of efficiency wages for the workers employed at the bottom of the job ladders.