Spatial changes in labour market inequality

We study spatial changes in labour market inequality for US states and MSAs using Census and American Community Survey data between 1980 and 2010. We report evidence of significant spatial variations in education employment shares and in the college wage premium for US states and MSAs, and show that the pattern of shifts through time has resulted in increased spatial inequality. Because relative supply of college versus high school educated workers has risen faster at the spatial level in places with higher initial supply levels, we also report a strong persistence and increased inequality of spatial relative demand. Bigger relative demand increases are observed in more technologically advanced states that have experienced faster increases in R&D and computer usage, and in states where union decline has been fastest. Finally, we show the increased concentration of more educated workers into particular spatial locations and rising spatial wage inequality are important features of labour market polarization, as they have resulted in faster employment growth in high skill occupations, but also in a higher demand for low wage workers in low skill occupations. Overall, our spatial analysis complements research findings from labour economics on wage inequality trends and from urban economics on agglomeration effects connected to education and technology.     

Supply of skilled labour and organizational change

The paper develops a model where the structure of organizations is a choice variable for firms and depends on conditions in the labour market. It shows that an increase in the supply of skilled labour may lead firms to adopt organizations with less hierarchical levels. This organizational change increases firms' demand for skilled agents and qualitatively modifies their jobs (i.e. the set of tasks assigned to skilled employees) thus increasing the skilled wage premium.     

Immigrants’ Wage Growth and Selective Out‐Migration

This paper examines immigrant wage growth taking selective out‐migration into account using administrative data from the Netherlands. Addressing a limitation in the previous literature, we address the potential endogeneity of immigrants’ labour supply and out‐migration decisions on their earning profiles using a correlated competing risk model. We distinguish between labour and family migrants, given their different labour market and out‐migration behaviours. Our findings show that accounting for selective labour supply is as important as accounting for selective out‐migration. Controlling only for out‐migration selectivity would underestimate immigrants’ wage growth, whilst controlling only for labour market selectivity would overestimate their wage growth. This shows that different selections are important for different types of migrants.     

Equilibrium unemployment with outsourcing under labour market imperfections

We study the effects of international outsourcing on equilibrium unemployment in a high-wage economy with labour market imperfections. We demonstrate, consistent with empirical results, that the wage elasticity of labour demand is increasing as a function of outsourcing. Furthermore, we show that a production mode with more outsourcing reduces the negotiated wage in a high-wage country with labour market imperfections if the relative bargaining power of the labour union is sufficiently high. Under such circumstances outsourcing reduces equilibrium unemployment. Finally, we characterize the optimal production mode showing that stronger labour market imperfections induce a production mode with more outsourcing.     

Input–Output Analysis,Labour Scarcity and Relative Price Endogeneity: Aggregate Demand Disturbances in a ‘Flex-price’ Leontief System

In this paper, we introduce scarcity into a conventional demand-driven input–output system to produce a ‘flex-price’ Leontief model. We retain the fixed technical coefficients but allow changes in relative prices to reflect variations in the real wage. Because the consumption coefficients increase with the real wage, the aggregate labour demand curve is found to be upward sloping. This produces conventional results, as long as the labour supply curve is perfectly elastic (horizontal). However, once we introduce labour scarcity, in the form of an upward sloping labour supply function, we derive the seemingly paradoxical result that the output and employment effects of a demand expansion are greater here than in conventional input–output. Through simulation, this result is found to be strongly dependent on the assumption of export exogeneity.     

Egyptian men working abroad: Labour supply responses by the women left behind

Female labour force participation has remained low in Egypt. This paper examines whether male international migration provides a leeway for women to enter the labour market and/or to increase their labour supply. In line with previous studies, we find a decrease in wage work particularly in urban areas. However, women living in rural areas and affected by migration are much more likely to be employed in non-wage activities (i.e. unpaid family work) and subsistence work compared to women in non-migrant households. Furthermore, we find evidence that this labour supply response is driven by the household's need to replace the migrant's labour rather than by a loosening of a financing constraint on family enterprises made possible by the flow of remittances.     

Progressive Taxes and the Labour Market: Is the Trade–off Between Equality and Efficiency Inevitable?

Does an income tax harm economic efficiency more the more progressive it is? Public economics provides a strong case for a definite ‘yes’. But at least three forces may pull in the other direction. First, low–wage workers may on average have more elastic labour supply schedules than high–wage workers, in which case progressive taxes contribute to a more efficient allocation of the total tax burden. Second, in non–competitive labour markets, progressive taxes may encourage wage moderation, and hence reduce the equilibrium level of unemployment. And third, if wage setters have egalitarian objectives, progressive taxes may reduce the need for redistribution in pre–tax wages, and hence increase the demand for low–skilled workers. This paper surveys the theoretical, as well as the empirical literature about labour supply, taxes and wage setting. We conclude that in a second best world, the trade–off between equality and efficiency is not always inevitable.     

The responsiveness of wages to labour market conditions in the UK

If wages are more flexible in the sense that pay is more responsive to labour market conditions, this has important implications for the workings of the aggregate economy. First, the real fluctuations generated by both demand and supply shocks are smaller, and second, the economy can operate at a higher level of activity relative to potential without adverse inflationary consequences (i.e., the NAIRU is lower). Our empirical analysis of wage flexibility suggests that UK wages have become more responsive to labour market conditions since the mid-1980s, at least relative to the previous decade. Furthermore, this has happened within certain industrial sectors. Finally, a part of this move towards greater responsiveness has been due to the decline in national pay bargaining over the relevant period. However, the majority of this change is due to some other factors.     

Firms' investments in general training and the skilled labour market

An adverse selection model is analysed, where firms can train or hire a skilled worker. In equilibrium, the market wage is determined by supply and demand. The quality of the supplied skilled labour is negatively biased, because workers stem from firms that shut down and from firms that observed their trainee's bad quality during the training. If fewer firms were to shut down, then the supplied average quality deteriorates and the incentive to train increases. The incentive is inefficient, because firms must share the informational rent and they free-ride. Ex ante workers may wish to increase the firms' bargaining power.     

A Meta‐Analytic Assessment of the Effect of Immigration on Wages

Abstract.  In our increasingly interconnected and open world, international migration is becoming an important socioeconomic phenomenon for many countries. Since the early 1980s, many studies about the impact of immigration on host labour markets have been undertaken. Borjas (2003 , The labor demand curve is downward sloping: reexamining the impact of immigration on the labor market. Quarterly Journal of Economics 118(4): 1335–1374) noted that the estimated effect of immigration on the wage of native workers varies widely from study to study and sometimes even within the same study. In addition, these effects cluster around zero. Such a small effect is a rather surprising outcome, given that in a closed competitive labour market an increase in labour supply may be expected to exert a downward pressure on wages. We revisit this issue by applying meta‐analytic techniques to a set of 18 papers, which altogether generated 348 estimates of the percentage change in the wage of a native worker with respect to a 1 percentage point increase in the ratio of immigrants over native workers. While many studies in our database employ US data, estimates are also obtained from Germany, The Netherlands, France, Norway, Austria, Israel and Australia. Our analysis shows that results vary across countries and are inter alia related to the type of modelling approach. Technical issues such as publication bias and quality of the estimates are addressed as well.     

Is tax progression really good for employment? A model with endogenous hours of work

This paper discusses the effect of tax progression on wage setting and employment in a unionised labour market. Recent contributions to this field argue that tax progression paradoxically enhances employment if wage setting is subject to collective bargaining. In this literature, individual hours of work are usually assumed to be exogenously given. We show that the positive employment effect of tax progression can be generalized to a model with a positive labour supply elasticity of individual workers. However, the wage-moderating effect of tax progression does not unambiguously carry over to a world where the union may fix both wages and individual hours of work. In this framework, the union reacts to tax progression by cutting individual working time. The wage rate, however, may decrease or increase. If the wage rate increases, the number of employed workers may decline despite the reduction in hours of work.     

Monopsonistic discrimination, worker turnover, and the gender wage gap

Motivated by models of worker flows, we argue in this paper that monopsonistic discrimination may be a substantial factor behind the overall gender wage gap. Using matched employer–employee data from Norway, we estimate establishment-specific wage premiums separately for men and women, conditioning on fixed individual effects. Regressions of worker turnover on the wage premium identify less wage elastic labour supply facing each establishment of women than that of men. Workforce gender composition is strongly related to employers' wage policies. The results suggest that 70–90% of the gender wage gap for low-educated workers may be attributed to differences in labour market frictions between men and women, while the similar figures for high-educated workers ranges from 20 to 70%.     

Shifts in the Demand and Supply of Skills in the OECD: A Single‐Index Model with a Continuous Distribution of Skills*

This paper proposes a one‐dimensional index for the gap between the demand and supply of skills; this index can be estimated based on the labour market performance of groups defined with characteristics (e.g. education) that are only imperfectly correlated with labour market skills. Using data from five European countries and the US, we find that the relative demand for skills has increased more than the relative supply in the US and UK during the 1980s but not in other European countries. However, the gap between relative demand and supply increased in Italy and the Netherlands from the early 1990s.     

TRADE LIBERALIZATION,LABOR DEMAND SHIFTS AND EARNINGS INEQUALITY IN SINGAPORE

This article investigates the relative wage between skilled and low skilled labor in a small open economy with traditionally few labor market rigidities. It looks at the role of relative skills demand and supply in determining skills premium and explores the extent to which trade liberalization affects the skills wage gap. Indications are that greater openness is linked to higher labor demand elasticity and/or technological progress. The evidence also suggests that rapid acceleration in labor demand for skills and trade liberalization has widened the wage gap between skilled and low skilled labor. This result persists regardless of industry type.     

Relative wage and unemployment changes in Poland: microeconometric evidence

We estimate changes in the Polish wage and unemployment structures between the years 1994 and 1998 in order to identify labour market characteristics associated with increasing and decreasing relative demand, as well as relative wage rigidities. The evidence shows that relative demand for workers with a low level of education decreased. Whereas relative wages for workers with basic vocational education also fell in this situation, relative wages of workers with only primary education did not, pointing to a relative wage rigidity for this group which faced an above-average unemployment risk throughout the observation period.     

Skills and labour incomes: how unequal is Italy as part of the Southern European countries?

This paper performs a comparative investigation of the effects of the Great Recession on the labour market structure and wage inequality in certain countries in Southern Europe (Greece, Italy, Portugal, and Spain). By exploring the intensity of the decline of middle-skill jobs during the years 2005–2013, which makes it possible to sketch what the labour market structure has set for itself (i.e., job polarisation, upgrading or neither), the objective is to relate these changes to wage inequality and its leading determinants. Through the Recentered Influence Function regression of the Gini index on EU-SILC data, Italy is compared to each selected country in order to evaluate how much of the spatial inequality gap is accounted for by the endowment in employee characteristics (composition effect) rather than the capability of each country’s labour market to reward these characteristics (wage structure) and, second, to identify those factors that are quantitatively more significant in making differentials. In brief, Italy is less unequal than the other Southern European countries. A larger amount of its “inequality advantage” depends on the wage structure. That is, the capacity of the country’s labour market in rewarding individual endowments is more important than the ways in which they are distributed across space.     

Is Child Work Necessary?*

This article investigates the hypothesis that child labour is compelled by poverty. It shows that a testable implication of this hypothesis is that the wage elasticity of child labour supply is negative. Using a large household survey for rural Pakistan, labour supply models for boys and girls in wage work are estimated. Conditioning on non-labour income and a range of demographic variables, the article finds a negative wage elasticity for boys and an elasticity that is insignificantly different from zero for girls. Thus, while boys appear to work on account of poverty compulsions, the evidence for girls is ambiguous.     

Estimating the effects of government office dispersal: An application of demand constrained shadow wages

In this paper, a model is developed to identify the net national employment effect and the particular shadow wage associated with Government office dispersal. The approach views the opportunity cost of labour as being determined by a demand constraint reflecting the desire of Government to maintain a constant ‘pressure of demand’. The model allows for several simultaneous effects of dispersal on the ‘pressure of demand’ and specifies the operation of the labour market in some detail. The solution to the model shows the net employment effect to be positive suggesting the importance of dispersal as an instrument of regional policy.     

Returns to Skills and the Distribution of Wages: Spain 1995–2010

In contrast to the pattern observed in other developed countries, the Spanish wage distribution compressed between 1995 and 2006 and became more disperse afterwards, so that in 2010 wage inequality was roughly similar to 1995. In this paper, we analyze the role of supply and demand factors when accounting for these facts. We start by decomposing observed wage changes into changes in the composition of the labour force and changes in the returns of workers' and jobs' characteristics. The results indicate that the compression of the wage distribution between 1995 and 2006 is largely explained by changes in returns, and particularly, by a decrease in the returns to education. We show that both the increase in the supply of high‐skilled workers and the increasing weight of low‐skilled occupations are related to the decreasing trend in the skill premium over this period. In contrast, the widening of the wage distribution after 2006 is largely explained by an increase in the relative demand for high‐skilled workers generating an increase in the school premium.     

LOCAL PAY DETERMINATION

Abstract. Theoretical models of local pay are reviewed, ranging from neoclassical perspectives, unemployment/wage trade-off models, and segmented labour market approaches. The empirical work on U.S. North-South differentials is discussed. For the U.K., studies of the extent of and trends in geographical pay differentials are considered, as well as behavioural explanations focusing on the role of excess demand. The issue of adjustment processes is then discussed, both in theory and in relation to empirical work for the U.S. and U.K. This discussion focuses largely on geographical spillover effects, in terms of origins, evidence, and issues of identification. Finally, the impact of certain impediments in the adjustment process are considered, specifically in relation to the U.K. These concern the role and influence of national wage bargaining, as well as factors inhibiting labour migration, stemming from the housing market and the climate of the national labour market.