Growth and Wage Inequality in a Dual Economy

Who benefits from economic growth? This paper analyses the distributional impact of different types of growth within a two‐sector model. The paper first presents necessary and sufficient conditions for unambiguous changes in wage inequality in a dual economy, based on analysis of the entire Lorenz curve. These conditions are then applied to the Harris–Todaro model with an urban non‐agricultural sector and rural agriculture. It is shown that capital accumulation or technical progress in agriculture can shift the Lorenz curve inwards and reduce wage inequality, while the effects of development in non‐agriculture are typically ambiguous.     

Unbalanced growth and health care expenditure

Baumol's model of unbalanced growth implies that health care expenditure (HCE) is driven by wage increases in excess of productivity growth. However, it remains unclear whether the HCE in developing countries is affected by the same factor. This paper tests this hypothesis by using China provincial panel data. We show that HCE grows more rapidly if economy‐wide wage growth exceeds productivity growth in China. The results are robust to the use of housing price as an instrumental variable for the economy‐wide nominal wage and the inclusion of real GDP growth, demographic structure, government deficit, pollution emissions and health sector quality as control variables. Furthermore, our findings show that Baumol's cost disease plays a more important role in the less economically developed western regions in which the rural–urban migration is less pronounced.     

刘易斯模型适用性考察

文章考察刘易斯经典模型的适用性,主要结论是:(1)刘易斯经典模型具有简单而又精巧的博弈结构,它大致适用于地主所有制且劳动力过剩的经济.(2)刘易斯经典模型不适用于自耕农制度且劳动力过剩的经济.在流动者与家庭脱离经济关系情形下(刘易斯曾考虑过),两部门工资大于或等于生存工资并在此基础上上升;在流动者与家庭不脱离经济关系情形下,农业部门工资上升而资本主义部门工资波动.(3)在多种农业土地制度并存情形下,经济发展不具备刘易斯经典模型的特征.由于劳动力流动次序由保留工资决定,其结果就是:在劳动力过剩阶段,资本主义部门工资先维持在生存水平上,此后逐步上升.(4)市场化改革以来,中国农业土地制度类似于自耕农制度,城乡分割的户籍制度使非农工作者与家庭很少脱离经济关系,劳动力流动特征与刘易斯经典模型结论也不一致.     

When does a developing country use new technologies?

We develop a model of optimal pattern of economic development that is first rooted in physical capital accumulation and then in technical progress. We study an economy where capital accumulation and innovative activity take place within a two sector model. The first sector produces a consumption good using physical capital and non skilled labor. Technological progress in the consumption sector is driven by the research activity that takes place in the second sector. Research activity which produces new technologies requires technological capital and skilled labor. New technologies induce an endogenous increase of the total factor productivity of the consumption sector. Physical and technological capital are not substitutable while skilled and non skilled labor may be substitutable. We show that under conditions about the adoption process of new technologies, the optimal strategy for a developing country consists in accumulating physical capital first; postponing the importation of technological capital to the second stage of development. This result is due to a threshold effect from which new technologies begin to have an impact on the productivity of the consumption sector. However, we show that once a certain level of wealth is reached, it becomes optimal for the economy to import technological capital to produce new technologies. The authors would like to thank the participants to the seminar of GREDEG, especially Richard Arena, Flora Bellone, Jean-Luc Gaffard and Jacques Ravix, and also the participants to a seminar at European University Institute. We are also grateful to the referees for their very thoughtful remarks and criticisms. Cuong Le Van started writing this joint paper with Olivier Bruno and Benoit Masquin in 2005, in GREDEG.     

Technical Progress and Real Wages Once again

We construct a general equilibrium model of trade and show that an economy can experience technological progress and declining real wages provided that it is open to trade and import demand is sufficiently inelastic in both countries. This is a puzzling outcome so far as marginal productivity paradigm is concerned. In this context we demonstrate that new technology works differently in a closed vs an open economy. In an open economy, technical improvements may generate a fall in labor real earnings, but not in a closed economy. In addition, technical progress in manufacturing must increase manufacturing–service wage gap according to marginal productivity doctrine. We show that the opposite outcome can occur theoretically in an open economy—yet another seemingly puzzling labor market outcome.     

Efficiency change,technological change and capital accumulation in Italian regions: a sectoral study

This paper examines the sources of labour productivity in the Italian regions during the period 1980–2004. Five economic sectors are investigated using data envelopment analysis (DEA) and taking into account productive specialisation and sector inefficiencies. Labour productivity change is decomposed into five components by means of Malmquist productivity indices: intra-sector efficiency change, composition efficiency change, input-biased technical change, magnitude component technical change and capital accumulation. Using bootstrap procedure, the components of labour productivity changes are statistically tested. Efficiency analysis shows that productive specialisation is not a source of inefficiency and efficiency gains can be obtained by sector-specific policies. Thus, it is possible to obtain improvements in efficiency in each sector of activity rather than reallocating resources among sectors. The results of the decomposition by sectors reveal heterogeneous sources of growth. The total economy has shown evidence of non-neutral technical change and, it has been found that agriculture, industry and construction experienced capital using technical change. The analysis of the decomposition of the labour productivity growth is complemented by an analysis of β-convergence.     

Dynamic and endogenous change of input–output structure with specific layers of technology

There are obvious gaps between long-term change in economic structure and its principal driving force—technological progress. History has shown the influence of technological progress on the economy and current insights in technological development can almost predict the technological waves of the next 50 years, but their potential impact on the economy has not yet been assessed. In this paper, we aim to simulate the evolution of economic structure as represented by input–output structure under specific technological change. A new version of a dynamic input–output model is developed in which both technological progress and deployment are endogenous. Investment in R&D drives the development of new technologies, installation of capital stock brings new technical processes into sector production, new and old technical processes within a sector exchange their relative weights in production as they are phased in or out, and sectors evolve or transform over time. Scenario analysis using this model applied to the Chinese electric power industry shows that the phasing-in of non-fossil energy technology will greatly change the structure of both the sector and the economy over the next 100 years.     

Services,innovation and the new economy

Several distinctive stylized facts form the new economy, an information technology service sector organized in network forms of organization, an inflation rate below its fundamentals, an increase in stock market volatility, high rates of economic growth, but apart from a small information technology manufacturing sector low productivity rates. This paper presents a model where the innovation of new service varieties can explain all of these facts. First, productivity gains are no longer realized within but between firms, as the increase in variety increases value-added per employee. Whilst service innovators, such as the information technology manufacturers, get ever more productive, individual service firms will exhibit low productivity. It is this unmeasured sectoral productivity gain, which is the key element in understanding the intrinsic inertia in the price index. Finally, the paper shows that variety in the service sector enables service providers to realize rents, where fluctuations of these rents are the basis of more than proportional changes in the firms' stock market value.     

The Political Economy of the "Minimum-Wage Institution" in an Internationally Integrated Market

The paper explores the political economy of the “minimum‐wage institution (MWI)” in an internationally integrated product market. The authors consider a two‐sector Economic Union (EU) with a perfectly competitive agricultural sector and a unionized oligopolistic manufacturing sector in which there exist productivity asymmetries across firms. It is shown that efficient firms have an incentive to strategically opt for intercountry minimum‐wage agreements high enough to raise their inefficient rivals’ costs and thus gain business in equilibrium. The unions of workers in all countries also find these agreements in their best interest. As a consequence, the MWI may emerge as the equilibrium institutional resolution of alternative political processes (i.e., an EU‐wide referendum or special‐interest politics), despite its negative effect on aggregate employment.     

Distributive impact of structural change: Does environmental degradation matter?

Vulnerability to reduction of natural capital depends on defensive substitution possibilities that, in turn, are affected by the availability of other productive factors. However in several developing countries asset distribution tends to be highly skewed. Taking into account these elements, this paper proposes a model considering an economy polarized into two classes (the rich and the poor) and characterized by the following stylized facts: income and productivity of the rural poor is highly dependent on natural resources; labour remuneration in rural sector represents the opportunity cost for wage labour; the rich can partially substitute natural capital with physical capital and wage labour. In this context, agents differ for feed back mechanisms and interactions between their choices of production and environmental dynamics. Moreover environmental depletion may trigger economic transition, but the structural change is likely to result regressive.     

Gender Wage Inequality and Economic Recession

The Paper develops a two sector full employment general-equilibrium model for a small open developing economy, with both male and female labor. One sector produces low-skilled export commodity while other sector produces high skilled import competing commodity. The effects of world-wide economic recession on gender wage inequality have been examined in such an economy. The analysis concludes that low demand for high skilled commodity and/or low volume of foreign direct investment due to recession may aggravate the average gender wage inequality in the economy.

     

“引进式技术进步方式”下的中国 经济增长与不平衡结构特征

中国经济保持高速增长的同时也伴随着诸多的结构问题。本文以引进式技术进步方式为基本假设条件，对高速增长和结构不平衡等问题进行了系统论述。中国经济不平衡增长方式是在国际产业转移和国内技术引进背景下形成的，并且要保持高速经济增长就必须采取不平衡增长方式。在引进式技术进步方式下，高端部门对低端部门具有生产力和收入传递效应。在理论研究基础上，本文对高低端两部门的不平衡结构演变及结构演变与经济增长的关系还进行了实证研究。研究结果表明：随着中国经济发展和国际环境的变化，原有经济增长方式难以维系，结构调整和发展方式转变才能使得中国经济向更为可持续的方向发展，而结构转变的核心在于技术进步方式的转变，只有自主创新替代技术引进才能从根本上解决中国经济结构问题。     

Firm ownership and internal labour practices in a transition economy

One feature common to many post‐socialist transition economies is a relatively compressed wage structure in the state‐owned sector. We conjecture that this compressed wage structure creates weak incentives for work effort and worker skill acquisition and thus presents adverse consequences for the entire transition economy if a substantial portion of the labour force works in the state sector. We explore firm wage incentives and worker training, as well as other labour practices and outcomes, in a transition setting with matched firm and worker data collected in one of the largest provinces of Vietnam – Ho Chi Minh City. The Vietnamese state sector exhibits a compressed wage distribution in relation to privately owned firms with foreign ownership. State wage practices stress tenure over worker productivity and their wage policies result in flatter wage–experience profiles and lower returns to education. The state work force is in greater need of formal training, a need that is in part met through direct government financing. In spite of the opportunities for government financed training and at least partly due to inefficient worker incentives, state firms, by certain measures, exhibit lower levels of labour productivity. The private sector comparison group to state firms for all of these findings is foreign owned firms. The internal labour practices of foreign firms are more consistent with a view of profit‐maximizing firms operating with no political constraints. This is not the case for Vietnamese de novo private firms that exhibit much more idiosyncratic behaviour and whose labour practices are often indistinguishable from state firms. The exact reasons for this remain a topic of on‐going research yet we conjecture that various private sector constraints, including limited access to formal capital, play an important role.     

Informal economy, wage goods and accumulation under structural adjustment theoretical reflections based on the Tanzanian experience

Economic development in sub-Saharan Africa under structuraladjustment witnessed the upsurge of informal sector development—thedevelopment of unregulated labour-intensive activities, in partexport-oriented. This paper argues that two factors played animportant role in shaping the dynamics of informal sector development:(1) the process of the relative cheapening of wage goods asa result of their importation, partly financed through foreignaid, thereby lowering unit-labour costs in labour-intensiveproduction, and (2) the processes at work of subsidising realwages by other forms of economic security as a result of multiple,diversified and spatially extended livelihood strategies. Whilethese factors undoubtedly brought a new vitality to economicdevelopment, this paper questions the long-run sustainabilityof this new trend for two reasons. One is its dependence onforeign aid to finance imports. The other is that it does notappear to propel endogenous increases in productivity by achievinggreater synergy in intersectoral linkages between agricultureand industry.     

Dispersion in Dispersion: Measuring Establishment-Level Differences in Productivity

We describe new experimental productivity dispersion statistics, Dispersion Statistics on Productivity (DiSP), jointly produced by the Bureau of Labor Statistics (BLS) and the Census Bureau, that complement the official BLS industry-level productivity statistics. The BLS has a long history of producing industry-level productivity statistics, which represent the average establishment-level productivity within industries when appropriately weighted. These statistics cannot, however, tell us about the variation in productivity levels across establishments within those industries. Dispersion in productivity across businesses can provide information about the nature of competition and frictions within sectors and the sources of rising wage inequality across businesses. DiSP data show enormous differences in productivity across establishments within industries in the manufacturing sector. We find substantial variation in dispersion across industries, increasing dispersion from 1997 to 2016, and countercyclical total factor productivity dispersion. We hope DiSP will enable further research into understanding productivity differences across industries and establishments and over time.     

Can Growth Ease Class Conflict?

This paper proposes a theory that links labor supply to wage growth and economic growth, and the conflict of interest between capital and labor. During the early stages of industrialization of a country, "surplus" labor drawn from the traditional sector of the economy is available to the modern capitalist sector at a constant or only slowly rising wage. As industrialization proceeds, this labor surplus vanishes, leading to wages rising in tandem with the growth of output. As long as there is surplus labor, workers in the modern capitalist sector, who are organized, have little interest in growth as it does not raise wages. The effect of growth is external to them, simply drawing more workers into the capitalist sector and enabling the entrants to receive rents. So capitalist-sector workers would like to redistribute income regardless of the adverse effect on growth. Once the economy grows enough for the subsistence sector to vanish, further growth raises wages. Hence, this change in the structure of the economy leads to a reduction in the intensity of the labor–capital conflict.
The dual economy model implies that growth rates rise over time and fall after the exhaustion of the labor surplus which is consistent with the stylized fact of economic growth.     

Political‐Economic Regime and the Wage Curve: Evidence from Chile, 1957–96

This paper tests whether a wage curve—a negative relationship between the level of unemployment and the level of pay—existed in Chile during 1957–96. The analysis is divided into two periods. For 1957–73, during inward‐led development, we reject the existence of a wage curve. For 1974–96, when the economy opened, state‐run industries were privatised and labour rights weakened, we find a wage curve of ?0.08. Based on this finding we conclude that the unemployment–pay elasticity in the post‐reform period is similar to the ?0.07 to ?0.10 wage curve found in other western, capitalist countries. Disaggregating the analysis by group, we find that women, non‐university educated workers and public sector workers have suffered more from unemployment. Yet informal sector workers have not experienced pay drops as a result of unemployment, contradicting the hypothesis that the informal sector acts as a buffer during economic downturns.     

Data deepening and nonbalanced economic growth

As a newly emerging factor, data can promote economic growth by driving technological progress, and nonbalanced growth between digital industries and nondigital industries has been notable in recent years. This paper provides a novel growth model with two sectors that differ in the degree of data deepening and the factor structure of the production function. In the model, data in one sector is the by-product of economic activities not only in its sector, but also in the other sector. More importantly, data utilization within and across sectors can spur new ideas and promote technological innovation. The model indicates that increases in the stock of data in the two sectors have opposite effects on the allocation of skilled labor between the two sectors. The skill premium (the wage of skilled labor relative to the wage of unskilled labor) decreases with an increase in the fraction of skilled labor employed in the data-extensive sector. With credible parameter values, model calibration shows that faster growth of output occurs in the more data-intensive sector and the high skill premium persists in the long run.     

Male–female wage discrimination in Chinese industryInvestigation using firm‐level data1

We use firm‐level data to analyze male–female wage discrimination in China's industry. We find that there is a significant negative association between wages and the share of female workers in a firm's labour force. However, we also find that the marginal productivity of female workers is significantly lower than that of male workers. Comparing wage gaps and productivity gaps between men and women, we notice an intriguing contrast between state‐owned enterprises (SOEs) and private firms. The wage gap is smaller than the productivity gap in SOEs, while the converse is true for private firms. These results suggest that women in the state sector receive wage premiums, whereas women in the private sector face wage discrimination.     

Information resources and economic productivity

This paper analyzes the role of information resources in the development of the United States economy and especially in the determination of productivity levels. The analysis is based on a formal economic model of the interrelationship between two sectors: an information sector, comprising all labor and capital used to process and handle information, and a production sector, which processes and handles material goods. The purposes of the model are to explain the past growth of the information sector workforce, to identify productivity trends in the sector, and to determine the implications of those trends for future economic performance. The analysis shows that, historically, the rate of efficiency improvement in information handling (essentially white-collar) work has been much slower than in production work. However this pattern is changing rapidly, chiefly as a result of the introduction of new data processing, communication and storage technologies. Our model shows that the expected future level of investment in these information technologies will be sufficient to reverse, by the mid 1980s, the slowdown of economic growth which is currently afflicting industrialized countries.