Trade,technology, and the labour market: impacts on wage inequality within countries

This paper focuses on the widening wage inequality between skilled and unskilled workers within countries and discusses whether trade and technology have contributed to this trend. The paper develops an analytical framework for wage inequality that traces the determinants and their relative roles in wage inequality in different stages of the development of trade theory, especially those considering new evidence after 2011. We find that technology plays a key role in the rise of wage inequality in most countries, while trade plays an increasingly crucial and more complex role in recent years. Skill supply institutions, such as education systems supplying skilled labour or unions participating in wage‐setting processes, suppress the rise of wage inequality in some countries. The paper further outlines the mechanisms through which trade affects wage inequality, including offshoring, firm heterogeneity, labour market frictions and global value chains. We find that trade has indirect effects on technology, which further enlarges the wage inequality among skills. The paper also discusses the policy implications of the impacts of trade and technology on wage inequality.     

Wages and Wage Inequality in South Africa 1994–2011: Part 2 – Inequality Measurement and Trends

We analyse the long‐term trends in wage inequality in South Africa, using household survey data. We show that the trends in household income inequality are largely driven by changes in wage inequality. Given the detailed nature of our series we show that measurement issues and breaks in the series need to be dealt with in order to draw robust conclusions from the data. Most standard inequality measures show that wage inequality has increased over the period. Nevertheless the choice of measure matters, because there are different trends in different parts of the distribution. It appears that the distribution below the median has become more compressed, while the top of the wage distribution has moved away from the median. The inequality in the labour market translates into even higher inequality in society given that high earners tend to live together with other high earners while low wage individuals often end up sharing their incomes with the unemployed. Furthermore there are many South Africans with access to no wage income. Given the trends analysed here it is not surprising that overall inequality in South Africa has not come down or has even increased since the end of apartheid.     

Wages and Wage Inequality in South Africa 1994–2011: Part 1 – Wage Measurement and Trends

We analyse the long‐term trends in wage inequality in South Africa, using household survey data. We show that the trends in household income inequality are largely driven by changes in wage inequality. Given the detailed nature of our series we show that measurement issues and breaks in the series need to be dealt with in order to draw robust conclusions from the data. Most standard inequality measures show that wage inequality has increased over the period. Nevertheless the choice of measure matters, because there are different trends in different parts of the distribution. It appears that the distribution below the median has become more compressed, while the top of the wage distribution has moved away from the median. The inequality in the labour market translates into even higher inequality in society given that high earners tend to live together with other high earners while low wage individuals often end up sharing their incomes with the unemployed. Furthermore there are many South Africans with access to no wage income. Given the trends analysed here it is not surprising that overall inequality in South Africa has not come down or has even increased since the end of apartheid.     

What is Behind Increasing Wage Inequality in Mexico?

We evaluate the impact of the educational expansion and changes in labor market institutions on wage inequality among Mexican workers using a simulation technique proposed by Knight and Sabot [The American Economic Review 73(5) (1983) 1132–1136]. We conclude that while increases in the relative rate of return of higher education would have induced an increase in wage inequality, changes in the composition of the educational distribution would have led to a stronger decline in wage inequality. Instead, increased wage inequality is largely explained by changes in Mexican labor market institutions; namely, unionization rate and minimum wages.     

The Lost Race between Schooling and Technology

We study the evolution of wage inequality between skilled and unskilled workers in the Netherlands for the years 1969-2020. Our analysis is based on estimates of the production structure in the Netherlands, projections of the relative supply of skilled workers, and projections regarding shifts in relative demand for skilled workers. Wage inequality will increase under plausible assumptions because relative demand for skilled workers will increase more rapidly than the relative supply of skilled workers. We study the potential of education subsidies to higher education in order to stimulate the supply of skilled workers thereby off-setting the increase in projected wage inequality. Our findings suggest that education subsidies are not very effective in combatting increases in wage inequality.     

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.     

Decomposition of the increase in earnings inequality in urban China: A distributional approach

This study examines changes in Chinese urban income distribution from 1987 to 1996 and 1996 to 2004 using nationwide household data and investigates the causes of these changes. The Firpo, Fortin, and Lemieux (2007, 2009) method based on unconditional quantile regressions is used to decompose changes in income distribution and income inequality measures, such as variance and a 10:90 ratio. The decomposition results show that wage structure effects, such as a widening gender earnings gap, increases in returns to college education, and increases in earnings differentials between industries, company ownership types, and regions, have been the major contributors to the overall increases in income inequality. It was also found that at different points on the income distribution (e.g., the lower or upper half), the contributing factors that increase income inequality are different.     

Wage growth and inequality in urban China: 1988–2013

We investigate the evolution of wage levels, wage inequality, and wage determinants among urban residents in China using China Household Income Project data from 1988, 1995, 2002, 2007, and 2013.Average wage grew impressively between each pair of years. Wage inequality had long been on the increase, but between 2007 and 2013 no clear changes occurred. In 1988, age and wages were positively related throughout working life, but more recently older workers' wages have been lower than those of middle-aged workers. The relationship between education and wages was weak in 1988 but strengthened rapidly thereafter—a process that came to a halt in 2007.During the period in which China was a planned economy the gender wage gap was small in urban China, but it widened rapidly between 1995 and 2007. We also report the existence of a premium for being employed in a foreign-owned firm or in the state sector.     

International trade and within-sector wage inequality: The case of South Korea

This paper studies which factors contributed to the changes in wage inequality in Korean manufacturing over the last three decades. By adopting Akerman et al. (2013)’s decomposition method, we examine the relative importance of within-sector and between-sector wage variations in Korean manufacturing over the period of 1980–2012. Our analytic results confirm that within-sector wage variation explains the lion’s share of overall wage inequality. Taking this finding into account, we estimate the impacts of international trade, skilled-biased technological change and labor market conditions on within-sector wage inequality in Korea. Our estimation results suggest that there was a structural change in determinants of wage inequality before and after the mid-1990s. The influence of international trade mainly through heightened import competition on wage dispersion became relatively more conspicuous over the last two decades.     

Free Trade and Wage Inequality in an Advanced Economy

This paper develops a formal model for examining the impact of free trade on the wage inequality in the Northern economy and the sensitivity of wage inequality indices to changes in causal factors within a general equilibrium setting.The model has three types of labor: sector-specific high-skilled, mobile unskilled and immobile unskilled labor. Thus, three types of wage inequality indices are derived. Selected comparative statics for changes in consumer expenditure shares, biased technological changes, changes in relative endowments are provided.     

Glass ceiling effect in urban China: Wage inequality of rural-urban migrants during 2002–2007

The paper studies the levels and changes in wage inequality among Chinese rural-urban migrants during 2002–2007. Using data from two waves of national household surveys, we find that wage inequality among migrants decreased significantly between 2002 and 2007. Our analysis on the wage distribution further shows that the high-wage migrants experienced slower wage growth than middle- and low-wage migrants—a primary cause of declining inequality of migrants. By using distributional decomposition methods based on quantile regression, we find that an overall between-group effect dominates in the whole wage distribution, which means that the change in returns to the characteristics (education, experience and other employment characteristics) plays a key role, but on the upper tails of the wage distribution, the within group effect (residual effect) dominates, implying that the unobservable factors or institutional barriers do not favor the migrants at the top tail of the wage distribution. We also study wage differential between migrants and urban natives, and find that though the wage gap is narrowed, the gap at the upper wage distribution is becoming bigger. Overall, the results suggest that there exists a strong “glass ceiling” for migrants in the urban labor market.     

Pollution mitigation,unemployment rate and wage inequality in the presence of agricultural pollution

This paper established a small open general equilibrium model to investigate the effects of the changes of consumers' unit private mitigation expenditure on the unemployment rate and the urban-rural wage inequality etc.. We found that (1) in the capital specific case, the increase of unit private mitigation expenditure will not only increase the urban unemployment rate but also expend the urban-rural wage inequality; (2) in the capital movable case, the conclusions are exactly opposite to that of the capital specific case. And under certain conditions, the increase of unit private mitigation expenditure may improve national income. According to the parameter calibration and numerical simulation results of the relevant macroeconomic data of China in 2017, we also found that (3) the effects of the changes of unit private mitigation expenditure on the urban unemployment rate is greater than that of the urban-rural wage inequality; (4) the influence degree of the changes of unit private mitigation expenditure on the unemployment rate in the capital movable case is greater than that of the capital specific case, but the influence degree of the change of unit private mitigation expenditure on the urban-rural wage inequality in the capital movable case is smaller than that of the capital specific case.     

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.     

INCOME INEQUALITY IN THE PHILIPPINES, 1961–91

Household income inequality in the Philippines remains high and the trends for three decades have been fairly stable except for a sharp decline in the mid-1980s. Gini coefficient of income inequality has been consistently close to 0.50. Urbanization and education of household head are the most important factors determining the level of income inequality while the contribution of age of head is limited. The increase in the number of urban households results in an increase of overall inequality while the increase in the number of household heads with a college education tends to decrease the inequality. Among the household income sources, wage income is the largest contributor to total income inequality. Wage rate inequality appears to be a major source of wage income inequality.     

Information economy and inequality: Wage polarization,unemployment, and occupation transition in Taiwan since 1980

This paper examines whether Taiwan’s economic inequality has worsened as Taiwan has evolved into an information economy, a transformation which began around 1980. The paper explores this relationship by investigating three specific research questions. First, has there been a rise in wage inequality in Taiwan since 1980; and if so, what are the sources of this rise in inequality? Second, has the transition to an information economy contributed to a rise in unemployment rates? And third, what type of occupational structural transformation occurred during this transition? The paper shows that since 1980, wage inequality, unemployment, and the white-collar–blue-collar worker employment ratio have all sharply increased in Taiwan. Furthermore, the reasons for these changes seem closely related to the relative growth of the information economy.     

Inequality,poverty and prospects for redistribution

This paper demonstrates that poverty and inequality trends can diverge. It then discusses inequality trends and shows that, despite measurement issues, there is consensus that inequality is very high and has been rising over much of the post-transition period. Due to rising inequality within all groups, and particularly the black population, and lower inequality between race groups, within-group inequality has become the dominant form of inequality. That does not, however, detract from the fact that inequality between groups is still very large. High income inequality largely stems from inequality in access to wage income, due more to wage inequality than to unemployment. A Gini coefficient for wage income amongst the employed of above 0.60 effectively sets a floor to overall income inequality. The high wage premium to educated workers derives from a combination of a skills shortage at the top end of the educational spectrum, driving up their wages, and a surfeit of poorly-educated workers competing for scarce unskilled jobs dampening unskilled wages; if the unemployed were to find jobs, it would be in this bottom part of the wage distribution, and consequently this would not much reduce wage inequality. A continuation of the historical pattern whereby only a small segment of the population obtained good schooling would leave the structures underlying the large wage premium unaltered. The time frame for substantial inequality reduction is thus necessarily a long one, while poverty reduction efforts should not wait for this to occur.     

Institutions, wages, and inequality: The case of Europe and its periphery (1500–1899)

This paper explores the long-run relationship between institutions and wage outcomes in Europe and its periphery. I find that cities that exercised stronger institutional protection of private property experienced: (i) higher levels of both skilled and unskilled real wages, as well as (ii) lower levels of inequality as measured by the skilled–unskilled wage ratio. While the first result corroborates existing work on the positive growth effects of better institutions, the second finding is more novel to the literature. Some explanations are proposed for how stronger institutions can cause an increase in the relative supply of skilled workers, thus lowering wage inequality.     

Wage inequality dynamics and trade exposure in South Korea

South Korea has experienced a great U-turn in its inequality trends during the past few decades. In this paper, we explore the role of international trade in its wage inequality dynamics over the 1998–2012 period, using a unique household panel survey. Our analysis reveals that most of the overall wage inequality occurs within sectors and educational groups rather than between them. However, the share in total inequality of the “between” variation across sectors and educational groups has moderately increased over time. Furthermore, we document that almost the entire aggregate wage inequality in both manufacturing and services occurs within different trade-exposure categories rather than between them, and this pattern is persistent through time. These results suggest that international trade might not be the main driving force behind the rising wage dispersion in South Korea in the last two decades.     

Labour unions and wage inequality among African men in South Africa

One Achilles' heel of post-Apartheid South Africa is the growing intra-racial income inequality, particularly among Africans. This paper examines the role of labour unions in explaining this phenomenon among African men given that labour markets are at the core of income inequality in South Africa. Using cross-sectional data drawn from Labour Force Surveys for 2001–10, we find a monotonically declining union wage premium. Further, our results indicate that unions have both compressionary and disequalising effects on wages. The disequalising effect dominates the compressionary effect, suggesting that unions have a net effect of increasing wage inequality among African men in South Africa. This finding implies that there is scope for unions to reduce inequality through initiatives that promote wage compression.     

Should Higher Education Subsidies Depend on Parental Income?

In many countries, student grants, tuition fees, and subsidizedloans depend on parental income. This paper examines the efficiencyand distributional effects of such conditioning, and assesseswhether it is optimal practice when the government wants toreduce after-tax income inequality in the most efficient manner.Increasing the mean level of education among the work-forcecompresses wage differentials by level of education and therebythe pre-tax income distribution. Hence, subsidizing educationmay be part of an optimal redistribution policy. However, educationsubsidies mainly benefit high-ability students, limiting theirredistributive virtues. Conditioning education subsidies onparental income may enable the government to reduce inframarginalsubsidies, mainly benefiting high-ability students, while preservingthe marginal subsidy, and thus the favourable effect on themean education level which leads to wage compression.