Trade liberalization and wage inequality: Evidence from Korea

This paper investigates the heterogeneous income distribution effects of trade liberalization using Korean survey data from years of 2000–2015. Following the Stolper-Samuelson theorem most of previous research studying the effects of trade liberalization on wage differences focus on workers’ characteristics (e.g., skilled or unskilled) while heterogeneity within the same worker group has not been yet substantially investigated. To fill this gap, this paper provides empirical evidence of wage inequality across firms within the same group of workers caused by trade liberalization, potentially implied in the new-new trade models with firm heterogeneity. Employing a difference-in-differences (DID) specification, we find that the wages of unskilled workers in Korea have increased since its FTAs with more advanced countries, such as members of EU and the US, came into effect, while the effects on the wages of skilled workers are negative but not statistically significant. We also show that wage effects are heterogeneous across firms within unskilled and skilled worker groups, while the positive effects are statistically significant and largest for unskilled workers in medium-large sized firms. These findings are in line with both traditional and new-new trade models.     

Skilled-Labor Intensity Differences Across Firms,Endogenous Product Quality,and Wage Inequality

This paper proposes a theory to explain the relative wage-rate increase for skilled labor that results from trade liberalization that relies on within-sector reallocations of production resources (skilled and unskilled labor) across firms. Motivated by some stylized facts, in a model with firm heterogeneity, including firms that differ in their skill intensity even within a narrowly defined industry, firms with relatively high skill intensity that are more likely to be exporters, and a positive association between a firm’s skill intensity and its product quality, I develop a general equilibrium model where firms with a higher skill intensity endogenously choose a higher-quality product, and tend to be more profitable. In this framework, a reduction in trade costs allows members of the workforce to reallocate to more efficient firms that produce higher-quality products, using their skilled labor more intensively, resulting in a rising skill premium. The main sources of the increasing wage inequality that followed trade openness are a positive link between a firm’s skill intensity, its product quality, and quality competition.     

Trade liberalization and the wage gap: the role of vertical linkages and fixed costs

This paper studies the labor market impacts of trade liberalization, and specifically tariff reductions, with a focus on the wage gap between skilled and unskilled workers in presence of vertical linkages in the fixed costs of production. To that purpose, we develop and empirically test a monopolistic competition model with variable elasticity of substitution and labor differentiated by skill level, where skilled workers are the residual claimants of savings on imported inputs. Consistently with the model predictions, we find that a 10% reduction in tariffs implies on average a 3.8% increase in the wage gap. In addition, the same level of tariff reduction is expected to lower unskilled employment in domestic production by 3.3%, which is partially offset by an expansion of unskilled employment in the export segment of production. These results are obtained matching detailed international trade data with World Input–Output Tables and EU KLEMS data on country-sector wage by skill level on 17 OECD countries from 1996 to 2005.     

Appropriation,firm dynamics,and wage inequality

This paper examines the income distribution and welfare effects of appropriation activities in an economy. In the short run, with a given number of firms, appropriation can narrow wage inequality between skilled and unskilled labor when the capital resources accrued by appropriators are not large. However, wage inequality widens when the capital accrued is large. In the long run, with free entry and exit of firms, an increase in appropriation can cause firms to enter when the accrued capital is not large. This gives rise to a win–win outcome by raising the wages of skilled and unskilled labor. However, if accrued capital is large, firms exit and a lose–lose situation may occur in which skilled and unskilled wages are reduced.     

INSTITUTIONAL WAGE EFFECTS: REVISITING UNION AND BARGAINING COUNCIL WAGE PREMIA IN SOUTH AFRICA

The literature on the union wage gap in South Africa is extensive, spanning a range of data sets and methodologies. There is, however, little consensus on the appropriate method to correct for the endogeneity of union membership or the size of the union wage gap. Furthermore, there are very few studies on the bargaining council wage premium in South Africa because of lack of data on the coverage of employees under these agreements. Our study, using 2005 Labour Force Survey data, firstly reconsiders the union wage gap controlling for both firm‐level and job characteristics. When correcting for the endogeneity of union status through a two‐stage selection model and including firm size, type of employment, and non‐wage benefits, we find a much lower union wage premium for African workers in the formal sector than premiums reported in some previous studies. Secondly, our study estimates bargaining council wage premiums for the private and public sectors. We find that extension procedures are present in both private and public bargaining council systems but that unions negotiate for additional gains for their members at the plant level. Furthermore, there is some evidence that unions negotiate for awards for their members in the private sector irrespective of bargaining council coverage.     

Do Exporting Firms Pay Higher Wages? Evidence from Kenya's Manufacturing Sector

Abstract: When trade liberalization was first embarked on in Kenya some 20 years ago, a key argument against it was that it would reduce domestic wages, as exporting firms sought to remain competitive versus, for example, the low‐cost Asian countries. A counter argument was that manufactured exports require more elaborate design, supervision, packaging and handling, and thus a more educated labor force than production for the domestic market. To attract such skills, exporting firms would need to pay higher wages than non‐exporting ones. This paper uses data from Kenyan manufacturing to study the impact of trade liberalization on earnings, distinguishing between exporting and non‐exporting firms. In particular, it investigates whether exporting firms paid a wage‐premium to their employees. The study uses manufacturing firm survey data from a World Bank regional project. The study has three important findings: (1) There was a large and significant effect of exporting on wages in the first decade of trade liberalization. During the first half of the 1990s, workers in exporting firms earned up to 30 percent more than those engaged in non‐exporting firms. The results are robust even after controlling for individual and firm‐level characteristics such as employee demographics, productivity, firm location and occupation. (2) After a decade of trade liberalization, exporting ceased to be a significant determinant of wages in Kenyan manufacturing, after controlling for productivity and firm location. (3) During the 2000s, casual or irregular employment became a more common feature of exporting firms. The results suggest that while higher wages were important in attracting skilled labor to exporting firms at the beginning of trade liberalization in the 1990s, domestic competition has since reduced the wage premium. Cost cutting pressures are instead reflected in the substitution of casual and low wage labor for permanent and better educated labor and in increased automation.     

Firm Size and Work Compensation in China

Remarkably, recent research on the Chinese labor market has suggested that the situation in China is inconsistent with the stylized fact that large firms pay higher wages and offer more generous benefits. Expanding the empirical basis from 78 to 300 000 industrial firms, I overturn theprevious result andshow that wage determination in the averagefirmfits the international norm. Exploring subsamples of firms I also point to a likely source for the conflictingfindings： firm size is positively correlatedwith the average wage in private firms, but negatively correlated with the average wage in the state-owned sector. These novel results couM guide future studies aiming to understand the sources of the firm size wage premium, and, in particular, studies that target the largest industrial labor market in the world     

Global value chains,firms, and wage inequality: Evidence from China

How does participating or moving to more upstream in the global value chains (GVCs) affect the premium paid to skilled compared to unskilled labor within firms? In this paper, we develop a model of heterogeneous firms with intermediate trade and two skill inputs, in which we apply the fair wage hypothesis to predict the wage premium changes according to firms' GVCs activities. The model predicts that firms' backward GVC participation, as measured by the share of foreign value-added content in exports (FVAR), has an ambiguous impact on wage inequality of skills, which depends on the relative importance of “FVAR-labor substitution effect” and “FVAR-profit effect.” However, moving to upstream sectors in GVCs, as measured by the export varieties' upstreamness (or average distance from final use), raises a firm's wage premium. Using detailed Chinese firm-level data from 2000 to 2006, we develop a Mincer-type empirical model to study the wage premium changes associated with FVAR and upstreamness. We find robust empirical evidence that the rise of wage inequality in China mainly arises from moving to more upstream sectors rather than changing GVC participation.     

The minimum wage,exports, and firm performance: Evidence from Indonesia

This paper examines the interrelationship between changes in the provincial minimum wage, firms’ export behavior, and firms’ performance in Indonesia. In this regard, we apply a two-stage least squares regression analysis to detailed firm-level data of manufacturing enterprises during 2002–2014. We find that an increase in the minimum wage is associated with a decrease in a firm’s employment and productivity, but increase in its probability of exporting and markup. We also use the 2012 minimum wage reform in Indonesia to conduct a difference-in-difference analysis to further mitigate the potential endogeneity of minimum wage regulation. Our findings are generally robust to alternative estimation methods. Moreover, quantile regression results indicate that the average wage, firm size, and the education level of workers also affect the predictions. Above all, this study suggests that Indonesian exports and the country’s comparative advantage in international markets are not negligibly affected by higher labor costs caused by the growth in the minimum wage.     

全球生产网络、贸易结构与工资差距：来自中国的证据

论文通过建立全球生产网络的中间投入品模型,实证分析中间品贸易对一国技术劳动力和非技术劳动力工资差异的影响。研究发现：加工贸易是中国融入全球生产网络的典型形态;其出口会扩大对技术和非技术劳动力的需求。但技术劳动力的工资上涨幅度要高于非技术劳动力的工资涨幅,从而使相对工资差距扩大。短期内,中间品的进口减少了技术劳动力的需求和就业,但长期来看中间品进口会扩大对技术劳动力的需求,相对工资差距拉大。人力资本投资的供给增长由于未能满足劳动力市场的需求,从而在一定程度上表现为工资差距拉大;但长期来看,人力资本积累机制的完善使得相对工资差距会逐渐缓和。     

外包与工资差距——基于工业行业数据的经验研究

本文首先检验了国际外包对我国熟练劳动力与非熟练劳动力工资差距的影响.计量结果表明,与斯托尔帕-萨缪尔逊定理所揭示的相反,外包贸易降低了我国相对丰裕的非熟练劳动力的相对工资.微电子设备的使用也加大了对熟练劳动力的需求,进一步加大熟练劳动力与非熟练劳动力的工资差距.为了检查是否是因为贸易形态的变化所导致的结果,我们进一步检...     

Is Bigger Still Better? The Decline of the Wage Premium at Large Firms

This study shows that the wage premium paid by large firms fell over the past 20 years and that this decline in the size premium is most pronounced among the least educated workers. Empirical evidence supports several explanations for the shrinking size premium. First, there has been a convergence in the returns to worker characteristics at large and small firms over time. Second, small and large firms are hiring more workers with similar characteristics. Particularly important are the declining share of workers at large manufacturing firms and the rising share of workers at large retail firms. Also, the greater decline of unionism at large firms has contributed significantly to the decline in the size premium.     

Upstreamness,exports, and wage inequality: Evidence from Chinese manufacturing data

In this paper we investigate within-firm wage inequality across heterogeneous industries that hold different positions in the domestic value chain, and across heterogeneous firms that have different exposure to trade. We find that the wage inequality problem is more severe in upstream industries than in downstream ones, and among firms with greater exposure to trade (i.e., larger export share of sales). Our findings support both classic and new new trade theories on wage inequality. In downstream industries where Chinese firms are typically engaged in processing and assembly work with intensive use of unskilled labor, trade leads to less wage inequality within firms. However, trade also introduces pro-competitive effects which usually benefit exporters and their skilled labor. The results hold after various checks and controls for robustness.     

Who is Better Off from Trade Liberalization? An Experience from Urban China*

Empirical studies have found that the skill wage gap (difference between wages earned by skilled and unskilled workers) narrowed in the case of the ‘Four Asian Dragons’ as they underwent trade liberalization during the 1960s and 1970s, whereas the gap widened in most of the Latin American countries after they liberalized their economies in the 1980s. China's integration into the world economy since 1978 has been used to explain this phenomenon, but few formal studies have been carried out in China regarding the effects of trade liberalization on the skill wage gap because of the limited availability of data. The present study uses unique household surveys conducted in ten provinces of China in 1988 and 1995 to study this issue. Results show that trade liberalization that occurred in China between 1988 and 1995 was responsible for an average increase of 28.73 yuan (approximately 20 percent of the total increase) in average monthly wages. However, trade liberalization significantly widened the urban skill wage gap in China by introducing an increase in income only for those who had 13 years or more of education (at least junior high school graduates). Interestingly, import liberalization also only benefited those who had more than 9 years of schooling; whereas export liberalization brought wage increases for people with 7–12 years of education. Finally, those with specific production skills from technical schools, rather than those with several years of general education, were mostly favored in the labor market in China between 1988 and 1995.     

The value-added tax reform and labor market outcomes: Firm-level evidence from China

The tax incentives designed to stimulate firm investment may have a large and unexpected impact on labor market outcomes. Using a comprehensive data set on Chinese manufacturing firms during the period 1998–2007 with a difference-in-differences approach, we examine the impact of the value-added tax reform in 2004 on the firm-level labor market outcomes. We find that firms in eligible industries and pilot regions (treated firms) enjoying lower costs of purchasing fixed assets under the reform tended to increase capital investment and reduce employment simultaneously relative to firms that did not have tax incentives (the control firms). Compared with the control firms, the treated firms became more capital intensive but had declines in labor share in value added and average wage. We also find that the employment adjustment is associated with increase in the share of skilled workers in terms of engineers and technicians, but not workers with a college degree or higher.     

Openness, Technological Change and Labour Demand in Pre-Crisis Indonesia

This paper examines the impact of export orientation, import competition, foreign ownership and the rate of capital accumulation on the relative demand for skilled and unskilled labour in pre-crisis Indonesia. Estimates from an interrelated factor demand analysis indicate that openness and foreign ownership, by themselves, acted to raise the relative demand for unskilled workers in the pre-crisis period, while the newness of capital was associated with increased relative demand for skilled workers. Overall, the relative demand for unskilled workers increased yet their relative wage position weakened. These contrasting relative employment and wage changes are consistent with the examined demand shocks and the greater elasticity of supply of Indonesian unskilled relative to skilled labour.     

What about the race between education and technology in the Global South? Comparing skill premiums in colonial Africa and Asia

Historical research on the race between education and technology has focused on the West but barely touched upon ‘the rest’. A new occupational wage database for 50 African and Asian economies allows us to compare long-run patterns in skill premiums across the colonial and post-colonial eras (c. 1870–2010). Our data reveal three major patterns. First, skilled labour was considerably more expensive in colonial Africa and Asia than in pre-industrial Europe. Second, skill premiums were distinctly higher in Africa than in Asia. Third, in both regions, skill premiums fell dramatically over the course of the twentieth century, ultimately converging to levels long observed in the West. Our paper takes a first step to explain both the origins of the Africa–Asia gap and the drivers of global skill premium convergence, paying special attention to the colonial context that shaped demand, supply, and labour market institutions.     

Wage increases, wage convergence, and the Lewis turning point in China

We examine the wage trends of ordinary workers and the wage convergence between unskilled and skilled workers in China. First, we find that wages in all non-agricultural sectors, wages of migrant workers, and wages of hired workers in the agricultural sector have increased dramatically since 2003. Second, through comparing wage differentials between migrant and urban resident workers and between heterogeneous education groups within migrant workers, and by investigating the changes in the contribution of the returns to education to wage differentials, we find that the wages of unskilled and skilled workers have converged. Both the increasing wage trends and wage convergence are interpreted as evidence supporting the hypothesis that China has passed what can be called the Lewis turning point in the industrial sector. We conclude that the sustainability of economic growth in China requires an upgrading of labor market institutions to accommodate the merging of the rural and urban labor forces.     

Where Do the Sick Go? Health Insurance and Employment in Small and Large Firms

Small firms that offer health insurance to their employees may face variable premiums if the firm hires an employee with high-expected health costs. To avoid expensive premium variability, a small firm may attempt to maintain a workforce with low-expected health costs. In addition, workers with high-expected health costs may prefer employment in larger firms with health insurance rather than in smaller firms. This results in employment distortions. We examine the magnitude of these employment distortions in hiring, employment, and separations using the Medical Expenditure Panel Survey from 1996 to 2001. We find that workers with high-expected health costs are less likely to be new hires in insured small firms and are less likely to be employed in insured small firms. We find no evidence that state small group health insurance reforms designed to restrict insurers' ability to deny coverage and restrict premium variability have reduced the extent of these distortions.     

A distributional analysis of union-wage effects in South Africa: Evidence from panel data

This paper examines whether individual workers’ time-invariant unobservable characteristics influence estimates of the South African union wage premium across the length of the conditional wage distribution. It employs the 2001–7 South African Labour Force survey and a fixed effects quantile regression estimator. Results show a relatively large (small) wage premium at the bottom (top) of the conditional wage distribution when workers’ time-invariant unobserved characteristics are ignored. Accounting for this set of factors substantially reduces the wage premium at all points of the distribution. In fact, the wage premium becomes somewhat constant across the conditional wage distribution, suggesting that unions in South Africa have little wage compressionary effects.