Increased sorting and wage inequality in the Czech Republic

This paper makes use of a linked employer–employee dataset to examine the evolution of wage inequality in the Czech Republic during 1998–2006. We find evidence of slightly increasing returns to human capital and diminishing gender inequality and document sharp increases in both within‐firm and between‐firm inequality. We investigate several hypotheses to explain these patterns: increased domestic and international competition, decentralized wage bargaining, skill‐biased technological change and a changing educational composition of the workforce. Domestic competition is found to lower within‐firm inequality whereas we find no evidence that increased international trade at the industry level is associated with higher between‐ or within‐firm wage inequality. The key factors driving the observed increase in wage inequality are increased educational sorting and the inflow of foreign firms to the Czech Republic.     

Trade between symmetric countries,heterogeneous firms,and the skill premium

Abstract This paper examines the effects of trade liberalization between symmetric countries on the skill premium. I introduce skilled and unskilled labour in a model of trade with heterogeneous firms à la Melitz (2003) and assume a production technology such that more productive firms are more skill intensive. I show that the effects of trade liberalization on wage inequality crucially depend on the type of trade costs considered and on their initial size. While fixed costs of trade have a potentially non‐monotonic effect on the skill premium, a drop in variable trade costs unambiguously and substantially raises wage inequality.     

Capital–Skill Complementarity: Does Capital Composition Matter?

We estimate the effect of capital composition on the size of capital–skill complementarity and the skill wage premium. Disaggregating the capital stock into different types according to technological content, we find that: capital is more of a q‐complement to skilled labor than to unskilled labor; the higher the technological component of capital, the larger the size of the relative q‐complementarity between capital and skilled labor; and replacing non‐technological with technological capital might increase the skill wage premium by about 9 percent. Our results highlight that changes in capital composition matter for understanding changes in the skill wage premium.     

Leaving state sector employment in Russia

I analyse the reallocation of labour and human capital from the state sector to the non‐state sector and non‐employment in Russia. I use a nationally representative household dataset, the Russian Longitudinal Monitoring Survey, to study sectoral mobility in early transition using summary measures of mobility and multivariate discrete choice models. The results show that sectoral mobility varies between different skill groups, and in particular that those with university education, with supervisory responsibility and in white‐collar occupations are less likely to leave state jobs for both non‐state employment and non‐employment. The results suggest that in the early stages of transition in Russia mismatch of skills across state/non‐state employment was significant and that non‐state employment consisted mostly of low skill, ‘bad’ jobs.     

Skill‐biased heterogeneous firms,trade liberalization and the skill premium

We propose a theory that rising globalization and rising wage inequality are related because trade liberalization raises the demand facing highly competitive skill‐intensive firms. In our model, only the lowest‐cost firms participate in the global economy exactly along the lines of Melitz ( 2003 ). In addition to differing in their productivity, firms differ in their skill intensity. We model skill‐biased technology as a correlation between skill intensity and technological acumen, and we estimate this correlation to be large using firm‐level data from Chile in 1995. A fall in trade costs leads to both greater trade volumes and an increase in the relative demand for skill, as the lowest‐cost/most‐skilled firms expand to serve the export market while less skill‐intensive non‐exporters retrench in the face of increased import competition. This mechanism works regardless of factor endowment differences, so we provide an explanation for why globalization and wage inequality move together in both skill‐abundant and skill‐scarce countries. In our model countries are net exporters of the services of their abundant factor, but there are no Stolper‐Samuelson effects because import competition affects all domestic firms equally.     

A model of wage and employment effects of service offshoring

This paper develops a two‐sector model of trade in goods and intermediate tasks that differ in tradability and skill intensity. A skill‐abundant country with high productivity is shown to offshore more unskilled tasks than skilled tasks, without relying on a particular correlation structure between tradability and skill intensity. With putty‐clay technology that allows retraining in the long run, transition from the non‐offshoring to the offshoring equilibrium generates wage and employment effects that switch from negative to positive as tradability declines, with the switches occurring at a higher degree of tradability for skilled tasks. This is consistent with the empirical literature.     

City Size and Wage Disparity in Segmented Labour Market in China

The relation between city size and wage inequality is well established for Western countries. This paper finds that city size–wage premium exists across Chinese cities to a lower extent than the Western world. Further, using a simplified model on the Chinese Household Income Project survey data, we find that the city size–wage premium varies with difference in skills among urban citizens. The variation amounts to 50% more for the high‐skill workers compared with their low‐skill counterparts. Moreover, owing to the presence of segmented labour market, the patterns of city size–wage premium and city size–wage inequality premium are notably different for the migrants, who receive a much lesser wage than the citizens and do not experience wage variation owing to their skill heterogeneity.     

The Effect of Emigration from Poland on Polish Wages

In this paper, we analyse the effect of emigration from Poland on Polish wages. Focusing on the 1998–2007 period for Poland, we use a unique dataset that contains information about household members who are currently living abroad, which allows us to develop region‐specific emigration rates and to estimate the effect of emigration on wages using within‐region variation. Our findings show that emigration led to a slight increase in wages for high‐ and medium‐skilled workers, which are the two groups with the largest relative outmigration rates. Workers at the low end of the skill distribution might have experienced wage decreases.     

The Value of Transferable Skills

Most studies on skill transferability focus on the return to capabilities developed in the initial job and disregard the different characteristics of the origin and the destination industries. In contrast, this article assesses the borders of skill transferability by comparing the return to skills for firm stayers, firm changers in the same industry, and firm changers to other industries. Based on a sample of Portuguese employees in retail banking, our results confirm significant inter‐firm and inter‐industry skill transferability. Difference‐in‐differences estimates with propensity score matching show that firm switchers benefit from a wage premium compared to firm stayers. However, the wage premium drops sharply when movers leave the banking sector.     

WHEN IS A GOOD TIME TO RAISE THE MINIMUM WAGE?

I analyze changes in the target efficiency of the federal minimum wage over the past 25 years. Using static simulation methods I find that minimum wage target efficiency is currently close to its 25‐year peak—of the total monetary benefits generated by a 12% increase in the federal minimum wage, 16.8% would flow to workers in poverty. This exceeds the least target efficient year over this period by 4.7 percentage points and is only 0.6 percentage points below the peak. Furthermore, I find a very strong positive relationship between minimum wage target efficiency and the real federal minimum wage. The implication is that, from an efficiency standpoint, a good time to raise the minimum wage is when it is already high. This discovery raises the possibility that the minimum wage increases the employment of low‐skilled poor individuals relative to the employment of low‐skilled non‐poor individuals. Moreover, this discovery may bolster the rationale for an indexed minimum wage whereby it is prevented from falling to less efficient levels. (JEL J21, J31, J38)     

Skills,Tasks and the Scarcity of Talent in a Global Economy

The scarcity of talent is a tremendous challenge for firms in the globalized world. This paper investigates the role of labor market imperfection in open economies for the usage of talent in the production process of firms. For this purpose, I set up a heterogeneous firms model, where production consists of a continuum of tasks that differ in complexity. Firms hire low‐skilled and high‐skilled workers to perform these tasks. How firms assign workers to tasks depends on factor prices for the two skill types and the productivity advantage of high‐skilled workers in the performance of complex tasks. I study the firms’ assignment problem under two labor market regimes, which capture the polar cases of fully flexible wages and a binding minimum wage for low‐skilled workers. Since the minimum wage lowers the skill premium, it increases the range of tasks performed by high‐skilled workers, which enhances the stock of knowledge within firms to solve complex tasks and reduces the mass of active firms. In a setting with fully flexible wages trade does not affect the firm‐internal assignment of workers to tasks. On the contrary, if low‐skilled wages are fixed by a minimum wage, trade renders high‐skilled workers a scarce resource and reduces the range of tasks performed by this skill type with negative consequences for the human capital stock within firms. In this case, trade leads to higher per‐capita income for both skill types and thus to higher welfare in the open than in the closed economy, whereas – somewhat counter‐intuitive – inequality between the two skill types decreases, as more low‐skilled workers find employment in the production process.     

Trade liberalization and the wage–skill premium: Evidence from Vietnamese manufacturing

This paper examines the wage–skill premium in Vietnamese manufacturing since the reform programme. The effects of tariff reductions on the wage–skill premium are analyzed in the presence of exporting opportunities, foreign investment, and research and development. The findings with firm‐level data reveal that a 10‐ percentage point fall in output tariffs is associated with a 4 percent increase in the wage–skill premium. The wage–skill premium in foreign‐invested enterprises is 40 percent higher than that of domestic enterprises. Trade liberalization influences the wage–skill premium in the presence of foreign ownership and R&D, while its impact on the skill premium only works through exporting.     

Multinationals,cross‐border acquisitions and wage dispersion

Abstract We examine the impact of cross‐border acquisitions on intra‐firm wage dispersion using a detailed Swedish linked employer‐employee data set including data on all firms and about 50% of the Swedish labour force with information on job‐tasks and education. Foreign acquisitions of domestic multinationals and local firms increase wage dispersion but so do also other types of cross‐border acquisitions. Hence, it is the acquisition itself rather than foreign ownership that increases wage dispersion. The positive wage effect is concentrated to CEOs and other managers, whereas other groups are either negatively affected or not affected at all.     

THE IMPORTANCE OF SKILL MEASUREMENT FOR GROWTH ACCOUNTING

In a growth accounting context one usually constructs a quality adjusted index of labor services by aggregating over predefined groups of workers, using the groups' relative wage bills as weights. In this article we suggest a method based on decomposing individual predicted wages into a skill‐related part and a part unrelated to skill, where the former consists of both observed and unobserved components. The predicted wages, associated with individual skill attributes, are sorted and classified into deciles. The median predicted skill‐related wage in each decile is used to construct an alternative skill‐adjusted index of labor services. We find that total factor productivity (TFP) growth decreases significantly when using the latter method. This means that when using the alternative method one explains more of the growth in labor productivity than what a more traditional labor quality adjustment procedure does.     

Testing the Heckscher–Ohlin–Vanek theory with a natural experiment

I use the historical episode of near‐elimination of commuting from the West Bank into Israel to test three key predictions of the Heckscher–Ohlin–Vanek model of trade and find strong support for them. On the production side, I use variation between districts and find that wage changes were not correlated with the size of the shock to the labour force (factor price insensitivity) and that districts that received larger influx of returning commuters shifted production more towards labour‐intensive industries (Rybczynski effect). On the consumption side, data are consistent with identical homothetic preferences, which, combined with the production results, supports the Heckscher–Ohlin–Vanek theorem on the factor content of trade.     

A MACROECONOMIC PERSPECTIVE ON SKILL SHORTAGES AND THE SKILL PREMIUM IN NEW ZEALAND*

Qualification and occupation‐based measures of skilled labour are constructed to explain the skill premium – the wage of skilled labour relative to unskilled labour in New Zealand. The data exhibit a more rapid growth in the supply of skilled labour than the skill premium, and a very large increase in the real minimum wage over the period from 1986 to 2005. We estimate the rate of increase in the relative demand for skills and the elasticity of substitution. The data are consistent with skill shortages and a skill‐bias technical change. We examine the effects of the minimum wage, capital complementarity, and the exchange rate on the skill premium. We also test whether the demand for skills and the elasticity of substitution varied across industries and over time.     

Foreign ownership wage premia in emerging economies

In this article we examine the relationship between wages, labour productivity and ownership using a linked employer–employee dataset covering a large fraction of the Czech labour market in 2006. We distinguish between different origins of ownership and study wage and productivity differences. The raw wage differential between foreign and domestically‐owned firms is about 23 percent. The empirical analysis is carried out on both firm‐ and individual‐level data. A key finding is that industry, region and notably human capital explain only a small part of the foreign–domestic ownership wage differential. Both white and blue collar workers as well as skilled and unskilled employees obtain a foreign ownership wage premium. Foreign ownership premia are more prevalent in older and less technologically advanced firms. Joint estimation of productivity and wage equations show that, controlling for human capital, the difference in productivity is about twice as large as the wage differential. Overall, results indicate that the international firms share their rents with their employees.     

The selection of migrants and returnees in Romania

This paper uses census and survey data to identify the wage earning ability and the selection of recent Romanian migrants and returnees on observable characteristics. We construct measures of selection across skill groups and estimate the average and the skill‐specific premium for migration and return for three typical destinations of Romanian migrants after 1990. Once we account for migration costs, we find evidence that the selection and sorting of migrants are driven by different returns to skills in countries of destination. Our identification strategy for the effects of work experience abroad permits a cautious causal interpretation of the premium to return migration. This premium increases with migrants' skills and drives the positive selection of returnees relative to non‐migrants. Based on the compatibility of the results with rationality in the migration decisions, we simulate a rational‐agent model of education, migration and return. Our results suggest that for a source country like Romania relatively high rates of temporary migration might have positive long‐run effects on average skills and wages.     

Selective immigration policy and its impacts on Canada's native‐born population: A general equilibrium analysis

This paper analyzes the effects of skilled immigration on the wage inequality between different education groups and the welfare of the incumbent population. I use a heterogenous agent overlapping generations model with endogenous discrete college education choice and calibrate it to match the features of 1981 Canadian economy. My quantitative analysis suggests that reducing the skilled immigration rate generates a rise in the growth rate of the wage inequality between college‐educated and non‐college workers. As skilled immigrants are admitted at a lower rate, more natives opt for college education in the economy. My welfare analysis shows that the incumbent young and college‐educated population benefits more from a reduction in the skilled immigration rate. On the other hand, young generations with below college education face welfare losses. My results suggest that skilled immigration contributes positively to the overall welfare in the economy.     

Does Occupational Training by the Trade Adjustment Assistance Program Really Help Reemployment? Success Measured as Occupation Matching

The Trade Adjustment Assistance Program provides various retraining opportunities to workers displaced due to import competition. This paper investigates whether successful skill acquisition through training—as opposed to general exposure to federal assistance—improves the post‐participation outcomes using the Trade Act Participant Report. Success in skill acquisition is indicated by a match between occupations of training and entered employment. The average matching rate for the sample is 37.53%. Trainees with a match display wage replacement rates that are 2 to 3 percentage points higher than those without one, while they display very similar post‐participation earnings that are inferior to that of non‐trainees. This generally indicates that participants with limited skill sets with lower pre‐participation earnings select into training, and successful skill acquisition offsets the negative impacts of their lack of marketable skills. Matching itself does not improve the retention at the job. However, participation in various training programs improves retention.