Does Outsourcing Provision Lead to Wage Inequality? New Evidence from Thailand's Establishment‐level Data

The impacts of outsourcing provision—the arrangements whereby a firm carries out production stages for other firms—are examined on wage differentials between skilled and unskilled workers using Thailand's establishment‐level data. The estimates based on a translog production function indicate that outsourcing provision augments productivity of both skilled and unskilled labor and contributes positively to wage inequality. The model predicts that a 1% increase in outsourcing provision leads to a rise in wage differentials by nearly 2.5%. The robustness check further reveals that the impacts of services provision on wage inequality are more pronounced than those of materials provision. These results highlight the importance of outsourcing provision as a new explanation of the widening skilled–unskilled wage gap in developing countries which typically emerge as a hub of outsourcing provision.     

Manufacturing Wage Differentials and Employment in Some Scandinavian Countries, the U.S. and the U.K.: An Analysis of Variance Approach

This paper presents some empirical evidence on the factors determining changes in wage differentials between skilled and unskilled workers and in their employment. An ``analysis of variance' (ANOVA) model is estimated using UN data for five OECD countries in order to assess the relative importance of industry-specific, country-specific and international shocks (as well as interactions between industry and country effects). It is found that both international shocks and national policies affect wage differentials over the whole sample, whilst skill-biased technical change (SBTC) was a significant factor in the seventies. Employment responds mainly to international shocks, although national policies and SBTC were important determinants in the seventies and eighties respectively. Some of the results are found to be sensitive to the technology level of the industries considered.     

Skilled–unskilled wage inequality and offshore outsourcing with asymmetric adjustment costs

We present a model that can capture the effects of offshore outsourcing on the wedge between the wages of skilled and unskilled workers when costs of adjustment are asymmetric. We identify conditions under which offshore outsourcing activities widen the skilled–unskilled wage inequality in the presence of asymmetric adjustment costs. We show how a higher cost of adjustment in the import-competing sector can magnify the offshore outsourcing induced gap between the wages of the skilled and unskilled workers. We also demonstrate the sensitivity of the effects of offshore outsourcing, on the skilled–unskilled wage gap, to asymmetries in the costs of adjustment.     

The combination of two tragedies: commons and anticommons tragedies

This paper studies the relationship between social conflict and skilled–unskilled wage inequality through the three-sector general equilibrium approach. In the basic model without the urban unskilled minimum wage, we find that when the government enhances the degree of controlling social conflict, the skilled–unskilled wage inequality will be narrowed down (resp. widened) if the urban skilled sector is more capital intensive (resp. labor intensive) than the urban unskilled sector. The extended models address the issue under different economic structures or different types of social conflict. In the extended model with the urban unskilled minimum wage, we find that the skilled–unskilled inequality will be widened when the degree of controlling social conflict is increased. In other extended models, we find that the above obtained results are still robust.     

Trade liberalization,technology, relative factor supplies and the relative wage: evidence from the South

There is much controversy about the role that trade liberalization, technological change and relative factor supplies have played in bringing about changes in the relative wage of the unskilled workers. Much of the empirical work on this issue has focused on the industrial countries and paid little attention to developing countries. To fill this gap, this study develops a special data set to examine the relative wage behaviour of a large number of developing countries. An empirical model based on the theory is used to test different explanations of the relative wage change. As predicted by the technology explanation, the empirical analysis in the study finds a significant negative link between the relative wage of unskilled workers and the technology index. The analysis, however, does not find a significant role for labour supplies or trade liberalization in determining the relative wage of unskilled–skilled workers.     

Increasing dispersion of skills and rising earnings inequality

In recent decades many countries have simultaneously liberalized their trading regimes and expanded their education systems. The theoretical effect of these regime shifts on the wage differential between skilled and unskilled workers is ambiguous. On the one hand, openness to trade causes demand shifts in the labor market which may widen or narrow the differential. This result depends on whether the unskilled wage is depressed, as in the case of importing countries, or raised, as in the case of exporting countries. On the other hand, an increased supply of more educated workers reduces their wages and narrows the skill wage gap. In this study of the labor market of Hong Kong, we document that recent changes in response to the trade liberalization of Mainland China and expanded access to education have increased the earnings differential between skilled and unskilled workers. Using detailed census data, we argue that the main reason for this outcome is the widened dispersion of skills across the earnings distribution, resulting from demand and supply shifts in the labor market caused by trade openness and expanded access to higher education.     

Institutional quality and skilled–unskilled wage inequality

This paper establishes two-sector general equilibrium models in the presence of unproductive activities to investigate how an improvement of the institutional quality influences the skilled–unskilled wage inequality. We find that an improvement of the institutional quality will affect the interest rate, and then the interest rate combining with the capital intensity will generate an impact on the skilled–unskilled wage inequality. Specifically, both the interest rate and comparisons of the capital–labor relative distributive shares between two sectors play an important role in determining the skilled–unskilled wage gap in an economy featured with unproductive activities. The above results are robust even when we extend the basic theoretical model in several different ways.     

Capital-skill complementarity and biased technical change across US sectors

The goal of this paper is two-fold. First, we reexamine the evidence for the capital-skill complementarity (CSC) and the skill-biased technological change (SBTC) hypotheses at the sectoral level in the US economy for the period 1970–2005. Second, we quantify their effect on the evolution of the wage skill premium. To do so, we estimate a translog model with three production factors (skilled labor, unskilled labor, and capital) for different sets of industry aggregates suggested by the literature. At the aggregated level, we find that both CSC and SBTC explain a substantial part of the observed change in the skill premium. The CSC hypothesis also receives support across sectors, although SBTC often explains a larger part of the premium change. We also find that the relevance of CSC increases with the level of aggregation of the data. Besides, when we disaggregate capital into ICT and non-ICT, our results suggest that often ICT capital is not the primary source of CSC. However, ICT-CSC is the most important driver of the skill premium in specific sectors, such as financial and business services.     

Quantifying the Impact of Trade on Wages: the Role of Nontraded Goods

This paper uses an applied general‐equilbrium model to decompose the effects of changes in trade‐ and technology‐related variables between 1982 and 1996 in the United States on the wages of skilled and unskilled labor. The results indicate that trade‐related variables (tariff cuts, improvement in the terms of trade, and the increase in the trade deficit) had little impact on the widening wage gap. The major factor behind the rise in the skilled wage relative to the unskilled wage was differential rates of growth in skill‐biased technical change across sectors. The paper also highlights the role that nontraded goods play in explaining the wage gap. Finally, the paper presents estimates of how wages would change if the economy moved to autarky. The results show that expanding trade could actually reduce wage inequality, rather than increase it.     

Wage Inequality and Human Capital Formation under Migration Possibilities

I examine the problem in the relationship between wage inequality and human capital formation under migration possibilities. Unlike previous analyses, I incorporate the education market and the education price into the analysis, and assume that workers bear the pecuniary cost for receiving education. Given such an assumption, migration possibilities do not necessarily increase education demand since the larger demand for education raises the education price and lowers the net return on education. By modelling an economy where workers in the home country (the labour‐sending country) comprise skilled and unskilled workers and they can migrate to the foreign country (the labour‐receiving country), I show that brain gain and brain drain occur simultaneously in the home country. In particular, if wage inequality is larger in the foreign country than in the home country, skilled workers experience brain gain and unskilled workers experience brain drain in the home country. On the other hand, if wage inequality is sufficiently larger in the home country, brain drain occurs in skilled workers and brain gain in unskilled workers.     

Trade Liberalization,Skill‐linked Intermediate Production and the Two‐sided Wage Gap

Abstract

A rising wage‐gap, almost universally, in the last two decades has contradicted the age‐old conventional wisdom of asymmetric wage movements across nations when trade is liberalized. We offer an explanation that fits well with the emerging trade pattern between the developed and more advanced developing countries like India and Mexico. We argue that a tariff reduction in the South on imports of an intermediate good from the North may raise the wage‐gap in both the North and the South. The price of the intermediate good moving in different directions and different factor‐intensity‐ranking of this good relative to the two different final goods produced in the two countries underlie this result. Rising wage inequality may specially affect the South because educational expenses and infrastructure do not allow ready transformation of the vast masses of unskilled workers into skilled workers. Hence, the policy lesson of the paper seems to be more public effort in arranging for smoother acquisition of human capital by the unskilled.     

Skilled–unskilled wage inequality: A general equilibrium analysis

The paper develops a static three sector competitive general equilibrium model of a small open economy in which skilled labour is mobile between a traded good sector and a non-traded good sector and unskilled labour is specific to another traded good sector. The capital is perfectly mobile among all these three sectors. We examine the effects of change in different factor endowments and of globalization on skilled–unskilled wage inequality. We find that the effect of a change of a factor endowment on wage inequality depends on the factor intensity ranking between two skilled labours using sectors and on the relative strength of the marginal effects on demand for and supply of non-tradable good. We also find that a decrease in the price of the product produced by skilled (unskilled) labour using traded good sector lowers (raises) the skilled–unskilled wage inequality.     

产业内贸易对中国技能 工资差距的影响

本文试图考察产业内贸易对技能工资差距的影响,理论分析表明：它随劳动力条件的变化而变化,在劳动力无限供给条件下它取决于技术劳动力的绝对需求,由于产业内贸易必能刺激技术劳动力的绝对需求,因此必然会扩大工资差距。但在劳动力条件转向有限供给后,它又取决于技术劳动力的相对需求,而产业内贸易未必使之扩大,特别是对两类劳动力替代弹性较大的部门来说,可能会使技术劳动力的相对需求下降,并使技能工资差距收缩。本文基于中国33个产业的5年面板数据验证了上述假说。     

Technology and outsourcing: An explanation to the rising wage gap

The recent phenomenon of widening skilled–unskilled wage gap in both North and South has been either explained by a technological change or by increasing trade or globalization. The paper provides a new explanation and emphasizes that it is neither technology nor trade alone but both that have contributed to the widening wage inequality. It argues, using a two-country occupational choice model, that any technological improvement in North results in a rise in the skilled–unskilled wage gap in North via an increase in the productivity of skilled labor followed by a rise in the same in South via trade or the outsourcing activities of the northern firms. The extent of outsourcing or the number of northern firms that outsource jobs to South is endogenously determined in the model. The paper also analyzes some major economic impacts of such a technological upgradation in North on the southern economy.     

An economic analysis of remittance of unskilled migration on skilled–unskilled wage inequality in labor host region

The present paper establishes a two-sector general equilibrium model and conduct the comparative static approach to investigate the impact exerted by an increase in the remittance rate of the unskilled migrants on the skilled–unskilled wage inequality in the labor host region. We find that the unskilled migrants increase their remittance rate to the labor outsourcing regions that will decrease the skilled–unskilled wage inequality in the labor host region.     

Corporate profit tax,firm entry with unemployment,and income inequality

In this paper, we provide a general equilibrium analysis of corporate profit tax on income distribution, unemployment, and wage inequality. With firm dynamics in industrial sector, we identify a new channel through which profit tax affects income and wage inequality: profit tax cut will widen not only the wage gap between skilled and unskilled labor, but also exacerbate the wage inequality of unskilled labor among different sectors. The welfare effect of profit tax cut depends on unemployment deepening (labor-distortion effect) and more manufacturing firms enter the market (business-creation effect), eroding the market share of incumbent firms (business-stealing effect).     

International Trade,Technology, and the Wage Gap: Evidence from Granger‐causality Tests*

In this paper, we propose an alternative approach under which to examine the source of the increased wage gap between skilled and unskilled workers in US manufacturing. Rather than imposing the assumptions inherent in a given structural form, we posit a long‐run equilibrium relationship between international trade, technology, and the wage premium using a vector error‐correction model. We first test for the existence of a long‐run relationship using cointegration tests. If a cointegrating relationship is found, we then conduct tests on the direction of the long‐run relationship and of Granger causality. We apply our approach to each two‐digit and four‐digit SIC industry and find evidence in support of international trade being an important source of the wage gap. Our results suggest that it is premature to dismiss international trade as a possible suspect behind the rising wage premium.     

Tariff Elimination and the Wage Gap in an Industrial Specific Factors Model*

A specific factors model of 458 US manufacturing industries simulates the effects of eliminating manufacturing tariffs on unskilled and skilled wages. The model assumes constant elasticity substitution, industry‐specific capital inputs, and mobile unskilled and skilled labor. Tariff elimination slightly lowers both unskilled and skilled wages, and increases the skilled wage gap. Industry outputs and capital returns absorb the negative impact of the falling tariffs with losses concentrated in more highly protected industries and most industries enjoying small positive outcomes.     

Skilled–unskilled wage inequality,nontraded good and endogenous supply of skilled labour: A theoretical analysis

The paper develops a static four sector competitive general equilibrium model of a small open economy in which skilled labour is endogenously produced by the education sector and is mobile between a traded good sector and a nontraded good sector. Capital is also perfectly mobile among the education sector, skilled labour using traded good sector and the nontraded good sector. However, land and unskilled labour are specific to another traded good sector. We analyse the effects of change in different factor endowments and reduction in tariff rate on skilled–unskilled wage inequality. We find that the effect of a change in different parameters on wage inequality depends on the factor intensity ranking between two skilled labour using sectors and on the relative strength of the marginal effects on demand for and supply of nontraded final good. We also analyse the effects of changes in different parameters on the supply of skilled labour.     

Factor mobility and skilled–unskilled wage inequality in the presence of internationally traded product varieties

Most existing studies examine the issue of skilled–unskilled wage inequality by using models that are relevant only in the long-run. In addition, studies that utilise product variety models assume that varieties of producer services are non-traded. Using a product variety model, this paper examines the issue of the skilled–unskilled wage inequality when producer services are internationally traded. The paper shows that, irrespective of the size of income share of capital, inflow of capital (which can also be interpreted as foreign direct investment) has no effect on skilled–unskilled wage inequality in the short-run. However, in the long-run, inflow of capital can decrease the skilled–unskilled wage inequality. An increase in the price of the agricultural good can decrease the skilled–unskilled wage inequality in the short-run.