Dynamics in transitory and permanent variation of wages in Germany

We employ covariance structure models to decompose the cross-sectional variance of male wages in Germany into its permanent and transitory parts. We find that the steep growth of cross-sectional inequality during the early 2000s is predominantly driven by transitory factors.     

Decentralizing antipoverty program delivery in developing countries

We study the effects on accountability in government service delivery of decentralizing administration of an antipoverty program. While governments at both central and local levels are vulnerable to antipoor policy biases owing to political capture, centralized delivery systems are additionally prone to bureaucratic corruption, owing to problems in monitoring bureaucratic performance. Decentralizing the delivery system promotes cost-effectiveness and improves intraregional targeting at low program scales. But interregional targeting may deteriorate, as central grants to high-poverty regions shrink, owing to high capture of local governments by local elites in such regions.     

Minimum wage,on-the-job search and employment: On the sectoral and aggregate equilibrium effect of the mandatory minimum wage

We study the impact of a minimum wage in a segmented labor market in which workers are at different stages of their careers. At the end of a learning-by-doing period, workers paid the minimum wage quit “bad jobs” for better-paying “good jobs”, following an on-the-job search process with endogenous search intensity. A rise in the minimum wage reduces “bad jobs” creation and prompts workers to keep their “bad jobs” by reducing on-the-job search intensity. The ambiguous impact on unqualified employment replicates and explains the findings of several empirical studies. However, a minimum wage rise reduces overall employment and output.     

Does Raising the Minimum Wage Help the Poor?*

What is the impact of raising the minimum wage on family incomes? Using data from the 1994–1995 to 2002–2003 Survey of Income and Housing, the characteristics of low-wage workers are analysed. Those who earn near-minimum wages are disproportionately female, unmarried and young, without postschool qualifications and overseas born. About one-third of near-minimum-wage workers are the sole worker in their household. Due to low labour force participation rates in the poorest households, minimum-wage workers are most likely to be in middle-income households. Under plausible parameters for the effect of minimum wages on hourly wages and employment, it appears unlikely that raising the minimum wage will significantly lower family income inequality.     

The Dynamics of Poverty and the Promotion of Transition from Non‐Regular to Regular Employment in Japan: Economic Effects of Minimum Wage Revision and Job Training Support

Comparison between Japan and other advanced countries shows that the relative poverty rate is high in Japan, and that many of the poor households are those with a non‐regular worker. As for mobility between income classes, the proportion of households remaining in the poor class for a long period of time in Japan is close to the average for EU countries. The panel estimation of its effect on wages shows that the raising of the minimum wage is statistically significantly associated with an increase in wages of non‐regular workers, in particular, female, but does not seem to decrease employment. The result shows that for male non‐regular workers, firm‐provided training promotes their transition to regular employment, and that for female non‐regular workers, occupational training promotes their transition to regular employment at different firms.     

Are labor markets segmented in developing countries? A semiparametric approach

We test the hypothesis that observably similar workers earn higher wages in the formal sector than in the informal sector in developing nations. Using data from Argentina's household survey and various definitions of informal employment, we find that on average, formal wages are higher than informal wages. Parametric tests suggest that a formal premium remains after controlling for individual and establishment characteristics. However, this approach suffers from several econometric problems, which we address with semiparametric methods. The resulting formal premium estimates prove either small and insignificant, or negative. Neither do we find significant differences in measures of job satisfaction between the two sectors. We invoke these results to question the mainstream view that labor markets are segmented along formal/informal lines in developing nations such as Argentina.     

Establishment size and task-specific wages: Evidence from historical contract data

This study examines whether task-specific jobs are rewarded differently across establishments of different sizes and whether these rewards vary across distinct technologies. We found that the aggregate premium estimates on the impact of size on wages conceal significant differences between tasks and technologies and that these differences reflect unobserved individual heterogeneity. The role of self-selection of more productive workers into larger establishments is particularly substantial in the case of abstract tasks.     

The impact of minimum wages on youth employment in Portugal

On January 1, 1987, the legal minimum wage for workers aged 18 and 19 in Portugal was raised by 49.3%. This shock is used as a “natural experiment” to evaluate the impact of the minimum wage change on teenagers’ employment. The method is to compare, based on firm-level microdata, the employment growth of 18-19-year-old workers with employment growth of older workers. The main findings are that the increase in the minimum wage significantly reduced employment of 18 and olds, but increased employment of 20- olds.     

Winners and losers: a micro-level analysis of international outsourcing and wages

Abstract.  Our paper investigates the link between international outsourcing and wages utilizing a large household panel and combining it with industry-level information on industries' outsourcing activities from input-output tables. This approach avoids problems such as aggregation bias, potential endogeneity bias, and poor skill definitions that commonly hamper industry-level studies. We find that outsourcing has had a marked impact on wages. Applying two alternative skill classifications, we find evidence that a 1 percentage point increase in outsourcing reduced the wage for workers in the lowest skill categories by up to 1.5%, while it increased wages for high-skilled workers by up to 2.6%. This result is robust to a number of different specifications.     

The diffusion of computers and the distribution of wages

When the costs are decreasing workers adopt technology at the point where the costs equal the increased productivity. Output per worker increases immediately, while productivity benefits increase only gradually if costs continue to fall. As a result, workers in computer-adopting labor market groups experience an immediate fall in wages due to increased supply. On the other hand, adopting workers experience wage increases with some delay. This model explains why increased computer use does not immediately lead to higher wage inequality. More specifically, the results of the model are shown to be consistent with the question why within-group wage inequality among skilled workers as a result of computer technology adoption in the United States increased in the 1970s, while between-group wage inequality and within-group wage inequality among the unskilled did not start to increase until the 1980s. The model also predicts that the more compressed German wage structure leads to a lagged diffusion of computer technology along with smaller changes in wage inequality. Our empirical analysis suggests that this is consistent with the actual developments in Germany since the 1980s. Finally, the theoretical predictions seem to be of the right magnitude to explain the empirical quantities observed in the data.     

A microfoundation for increasing returns in human capital accumulation and the under-participation trap

This paper considers educational investment, wages and hours of market work in an imperfectly competitive labour market with heterogeneous workers and home production. It investigates the degree to which there might be both underemployment in the labour market and underinvestment in education. A central insight is that the ex post participation decision of workers endogeneously generates increasing marginal returns to education. Although equilibrium implies underinvestment in education, optimal policy is not to subsidise education. Instead it is to subsidise labour market participation which we argue might be efficiently targeted as state-provided childcare support.     

Employment shifts, economic reform and the changes in public/private sector wages in Mexico: 1987–1997

Over the last decade, the public sector in Mexico experienced substantial fiscal reform, divestiture of public enterprises, and the elimination of many regulations affecting pay and employment. This study analyzes the changes in the public/private sector differences in wages during the 1987–1997 period. The results from analyzing microdata from the Encuesta Nacional de Empleo Urbano show that relative public sector wages increased from 1987 to 1997. Most of the relative wage increase in the public sector can be explained by increases in the price of skills and by changes in sorting across sectors. The results have important public policy implications since they suggest that public sector workers earn more and their wages have grown faster than those of their private sector counterparts. As such, policies contemplating public sector reform should take into account the effect of these measures on the inter-sectoral income distribution and the overall economic growth. First version received: April 2000/Final version received: December 2000     

Substitution and superstars

The existing superstar model (Rosen, 1981) does not require imperfect substitutes, and the convexity of total earnings with respect to talent is due to greater output for those with more talent. Our model explains why wages would increase at an increasing rate in talent. Imperfect substitutability between non-superstars and superstars with probabilistic production results in convexity in wage rates.     

Employment, wages, and the economic cycle: Differences between immigrants and natives

In this paper, we analyse differences in the cyclical pattern of employment and wages of immigrants and natives for two large immigrant receiving countries, Germany and the UK. We show that, despite large differences in their immigrant populations, there are similar and significant differences in cyclical responses between immigrants and natives in both countries, even conditional on education, age, and location. We decompose changes in outcomes into a secular trend and a business cycle component. We find significantly larger unemployment responses to economic shocks for low-skilled workers relative to high-skilled workers and for immigrants relative to natives within the same skill group. There is little evidence for differential wage responses to economic shocks. We offer three explanations for these findings: an equilibrium search model, where immigrants experience higher job separation rates, a model of dual labour markets, and differences in the complementarity of immigrants and natives to capital.     

Who makes,who breaks: Which scientists stay in academe?

We examine the survival of young scientists in academe. The propensity to leave follows an inverse u-shape. Publishing increases and patenting decreases the chance of survival. Scientists with strong preferences for business are less likely to stay in academe.     

Does work pay in France? Monetary incentives, hours constraints, and the guaranteed minimum income

This paper uses a representative sample of individuals on France's main welfare program (the Revenu Minimum d'Insertion, or RMI) to estimate monetary incentives for employment among welfare recipients. Based on the estimated joint distribution of wages and hours potentially offered to each individual, we compute potential gains from working in a very detailed manner. Relating these gains to observed employment, we then estimate a simple structural labor supply model. We find that potential gains are almost always positive but very small on average, especially for single mothers, because of the high implicit marginal tax rates embedded in the system. Employment rates are sensitive to incentives with extensive margin elasticities for both men and women usually below one. Conditional on these elasticities, simulations indicate that existing policies devoted to reducing marginal tax rates at the bottom of the income distribution, such as the intéressement earnings top-up program, have little impact in this population due to their very limited scope. The negative income tax (Prime pour l'emploi), seems to be an exception.     

Poverty growth in Scandinavian countries: A Sen multi-decomposition

We show in this paper that the growth rate of the Sen index is multi-decomposable, that is, decomposable simultaneously by subgroups and income sources. The multi-decomposition of the poverty growth yields respectively: the growth rate of the poverty incidence (poverty rate) decomposed by subgroups, the growth rate of the poverty depth (poverty gap ratios) decomposed by sources and subgroups, and the growth rate of inequality decomposed by sources and subgroups. We demonstrate that the multi-decomposition is not unique. It is mainly dependent on poverty lines defined on the space of income sources. An application to Scandinavian countries shows that poverty lines based on non-correlation between the income sources imply serious risks of underestimation of the contribution levels of the different components of the global poverty growth. The main contribution of our paper is to pay particular attention to the poverty growth and its source components in order to avoid underestimation of poverty growth.     

Education, segregation and marital sorting: theory and an application to the UK

This paper presents a model of the intergenerational transmission of education and marital sorting. Parents matter both because of their household income and because their human capital determines the distribution of a child's disutility from making an effort to become skilled. We show that an increase in segregation has potentially ambiguous effects on the proportion of individuals that become skilled in the steady state, and hence on marital sorting, the personal and household income distribution, and welfare. We calibrate the steady state of our model to UK statistics. We find that an increase in the correlation of spouses in their years of education will bring about a small increase in the proportion of skilled individuals when the relative supply of skilled individuals is variable at the family level and a decrease when this supply is fixed. Ex-ante utility (of an unborn individual) increases in the first case and decreases in the second. The welfare effect of increased sorting is negative for unskilled individuals and positive for skilled individuals. Increased segregation always leads to an increase in welfare inequality between skilled and unskilled individuals.     

Alternative theories of wage dispersion

We analyze labor market models where the law of one price fails—i.e., models with equilibrium wage dispersion. We begin considering ex ante heterogeneous workers, but highlight a problem with this approach: If search is costly the market shuts down. We then assume homogeneous workers but ex post heterogeneous matches. This model is robust to search costs, and delivers equilibrium wage dispersion. However, we prove that the law of two prices holds: Equilibrium implies at most two wages. We explore other models, including one combining ex ante and ex post heterogeneity which is robust and delivers more realistic wage dispersion.