Immigrant Specificity and the Relationship between Trade and Immigration: Theory and Evidence

Studies routinely document that immigrant employment concentrates in non‐traded goods sectors and that many immigrants have low inter‐sectoral mobility. We consider these observed characteristics of immigrant employment with regard to the question of how immigration affects a nation's pattern of production and trade. We model an economy producing three goods; one is non‐traded. Domestic labor and capital are domestically mobile but internationally immobile. Allowing that some new immigrants will become specific to the non‐traded goods sector, the model indicates that the effects of immigration on output and trade depend importantly on the sectoral pattern of employment of both new and existing immigrants. Empirical investigation in a panel data set of OECD countries supports the model's prediction that immigration raises the output of non‐traded goods. Consistent with the model, we also find that immigration and trade are complements. Given its empirical support, the model's implications for immigration policy are then discussed.     

Foreign Multinationals and Local Firms in Vietnam's Economic Transition*

This paper compares the economic performance of foreign multinational corporations (MNC) and local firms in Vietnam, distinguishing between two distinct types of local firms: state‐owned enterprises (SOE) and non‐SOE. Between the mid‐1990s and 2000, foreign MNC in Vietnam's economy grew very rapidly, but their growth has been much slower thereafter. Consistent with the theoretical suggestion that MNC possess relatively large amounts of firm‐specific assets related to production technology, marketing networks and management know‐how, these comparisons suggest that foreign MNC were generally larger and had higher labor productivity, capital intensity, wage levels, investment propensities and trade propensities than non‐MNC. On the other hand, foreign MNC tended to have relatively low capital productivity and wage shares of value added, while results regarding profitability were mixed. In general, these differentials tended to be relatively small between foreign MNC and SOE, and SOE tended to be larger than foreign MNC in terms of employment. Correspondingly, comparisons of foreign MNC with non‐MNC generally revealed more consistent differences, largely because the local private sector is still very underdeveloped in Vietnam.     

Non‐farm employment and incomes in rural Cambodia

Rural households in Cambodia derive income from various sources. On average, non‐farm income accounts for more than 60 per cent of total household income. However, the average masks the substantial heterogeneity of non‐farm employment. We account for this heterogeneity and find significant differences in non‐farm participation and incomes across segments of the income distribution. The poor and the less well‐educated participate less in the non‐farm sector, and when they do work in the non‐farm sector, they work in low‐paid jobs and earn lower incomes. Accounting for endogeneity and sample selection issues, we conduct an empirical enquiry of the determinants of participation in non‐farm activities and of non‐farm incomes. As expected, we find that education plays a major role in accessing more remunerative non‐farm employment. Interestingly, we do not find evidence that women, ethnic minorities, or the land‐poor are disadvantaged in access to the non‐farm sector. Geographical location plays a role in access to and income from non‐farm employment, indicating the importance of local context.     

On the heterogeneous short‐term effects of minimum wages on labor demand

A strand of the literature documents no effects or even positive effects of a higher minimum wage on employment. This evidence is frequently linked to the existence of monopsonistic labor markets or search frictions. However, empirical studies show that these findings could be related to a low short‐term minimum wage–employment elasticity in a competitive labor market. We show that mixed theoretical employment effects of a minimum wage policy can be predicted in the short term in assignment economies with price‐taker agents and no search frictions.     

An empirical analysis of the unit labor cost-product price relation in the U.S. economy

This article tests for cointegration between unit labor costs and the level of product prices in four sectors of the U.S. economy: the aggregate business sector, the nonfinancial corporate sector, durable manufacturing, and nondurable manufacturing. A finding of cointegration for most specifications supports the existence of long-run labor market equilibrium for producers and suggests estimation of error-correction models to examine the dynamic relationships. In every sector except nondurable manufacturing, error-correction model estimates indicate there is a mutual feedback relationship between unit labor costs and prices. Controlling for deviations from full employment, oil price shocks, and the Nixon wage and price controls, the results also provide evidence of significant nominal wage indexation in U.S. labor markets. Throughout the economy there appears to exist both effective neoclassical wage and price adjustment mechanisms to maintain labor market equilibrium and short-run rigidities which may contribute to deviations from full employment outcomes.     

INSTITUTIONAL WAGE EFFECTS: REVISITING UNION AND BARGAINING COUNCIL WAGE PREMIA IN SOUTH AFRICA

The literature on the union wage gap in South Africa is extensive, spanning a range of data sets and methodologies. There is, however, little consensus on the appropriate method to correct for the endogeneity of union membership or the size of the union wage gap. Furthermore, there are very few studies on the bargaining council wage premium in South Africa because of lack of data on the coverage of employees under these agreements. Our study, using 2005 Labour Force Survey data, firstly reconsiders the union wage gap controlling for both firm‐level and job characteristics. When correcting for the endogeneity of union status through a two‐stage selection model and including firm size, type of employment, and non‐wage benefits, we find a much lower union wage premium for African workers in the formal sector than premiums reported in some previous studies. Secondly, our study estimates bargaining council wage premiums for the private and public sectors. We find that extension procedures are present in both private and public bargaining council systems but that unions negotiate for additional gains for their members at the plant level. Furthermore, there is some evidence that unions negotiate for awards for their members in the private sector irrespective of bargaining council coverage.     

Labour Market Flexibility,Wages and Incomes in Sub‐Saharan Africa in the 1990s

Abstract: This paper provides an overview of how African labour markets have performed in the 1990s. It is argued that the failure of African labour markets to create good paying jobs has resulted in excess labour supply in the form of either open unemployment or a growing self‐employment sector. One explanation for this outcome is a lack of labour market ‘flexibility’ keeping formal sector wages above their equilibrium level and restricting job creation. We identify three attributes of labour market flexibility. First, whether real wages decline over time; secondly, the tendency for wages to adjust in the face of unemployment; and thirdly, the extent of wage differentials between sectors and/or firms of various size. Recent research shows that real wages in Africa during the 1990s may have been more downwardly flexible than previously thought and have been surprisingly responsive to unemployment rates, yet large wage differentials between formal and informal sector firms remain. This third sense of the term ‘inflexibility’ can explain a common factor across diverse African economies — the high income divide between those working in large firms and those not. Those working in the thriving self‐employment sector in Ghana have something in common with the unemployed in South Africa — both have very low income opportunities relative to those in large firms.     

Hukou system reforms and skilled-unskilled wage inequality in China

In China, rural migrant workers usually cannot get fair treatment due to the hukou system. This paper investigates how hukou system reforms affect the skilled-unskilled wage inequality through the general equilibrium approach. In the basic model, we find that an increase in the strength of hukou system reforms will narrow down the wage inequality if the urban skilled sector is more capital intensive than the urban unskilled sector. In addition, we separately extend the basic model by introducing the endogenous minimum wage and an informal sector, and find that in these two extended cases the main results of the basic model will conditionally or unconditionally hold. When we consider some empirical evidences in China, our models predict that an increase in the strength of hukou system reforms will reduce the wage inequality.     

Revisiting wage subsidies: How pro-poor is a South African wage subsidy likely to be?

Wage subsidies have been used in both developed and developing countries to raise employment. After a decade of deliberation, the South African Government recently announced the introduction of a wage subsidy scheme. Given the intrinsic link between unemployment and poverty in South Africa, the belief is that a wage subsidy programme sufficient in scope will also make inroads into poverty. However, the way in which jobs are distributed among poor and non-poor jobseekers is crucial. Our general equilibrium microsimulation model confirms the expectation that a higher wage elasticity of labour demand is associated with larger reductions in poverty. We also find that a greater proportion of new jobs accrue to poor jobseekers when the elasticity is high. While youth-targeting does not improve the poverty-reducing effect of the policy, sectors such as textiles, accommodation, and construction services with their pro-poor employment profiles are good candidates for targeting.     

Public sector wage settlement and the threat of outsourcing

This paper investigates the impact of outsourcing on wage settlement in the public sector. The study characterizes the equilibrium wage offered by the public sector union to a government bureau competing against private sector firms. It is predicted that the union will offer a concession wage in an attempt to block outsourcing when its members' outside employment options are sufficiently unattractive and will offer a non-concession wage otherwise. The study contributes to the literature on outsourcing and wage determination in the public sector.     

On expectations‐driven business cycles in economies with production externalities: A comment

Eusepi (2009, International Journal of Economic Theory 5, pp. 9–23) analytically finds that a one‐sector real business cycle model may exhibit positive co‐movement between consumption and investment when the equilibrium wage‐hours locus is positively sloped and steeper than the household’s labor supply curve. However, we show that this condition does not imply that expectations‐driven business cycles will emerge in Eusepi's model. Specifically, a positive news shock about future productivity improvement leads to an aggregate recession whereby output, employment, consumption and investment all fall in the announcement period.     

Employment response to supply and demand shocks under envy in wage formation

Summary We analyse the impact of wage envy on employment and on its sectorial allocation. A multi-sector general equilibrium model in which externalities among sectors arise through wage envy and decentralized bargaining is presented. In the no externality case, sectorial employment is a function of sectorial productivity and of the disutility of work. In the externality case, sectorial employment is additionally affected by union power in all sectors (with a negative sign even though bargaining is efficient), by the productivity in the other sectors (with an undetermined sign) and by the relative average propensity to consume goods of this sector (with a positive sign).Rijksuniversiteit Limburg, FNRS and Université Catholique de Louvain. I would like to thank Franz Palm for valuable comments on an earlier draft. This paper benefitted also from discussions with Torben Andersen, Jacques Drèze and Henri Sneessens (without implying them in any mistake). The detailed comments of the anonymous referee contributed to a large extent to clarify the exposition of the model.     

Rural-Urban Wage Differentials,Unemployment, and Efficiency Wages: An Open Economy Policy Analysis

This paper analyzes the desirability of various policies designed to counteract the distorting nature of an equilibrium rural-urban wage differential in a small, open, two-sector economy with urban unemployment. A dual labor market model with an efficiency wage in the urban sector and urban unemployment is analyzed for the distributional and national output effects of an urban wage subsidy, an urban production subsidy, and a tariff on the urban good. While a small subsidy or tariff raises the value of national output, redistribution effects may limit the viability of intervention. However, subsidies can also be Pareto improving policies.     

The Effect of Immigration on Unskilled Native Workers: Evidence from a Natural Experiment

This study exploits the natural experiment, provided by the start of the second intifada, to measure the effect of immigration on the wage and employment of unskilled native workers. It finds that immigration has no effect on the wage or employment of unskilled Jewish workers. The wage and employment of the least‐skilled Israeli Arab workers (with zero to five years of schooling) are adversely affected by immigration. The slightly more skilled Arab workers (with six to 11 years of schooling), in contrast, are positively affected by immigration, suggesting a complementarity effect with this group. Different explanations are proposed.     

Wage setting and tax progressivity in dynamic general equilibrium

This paper concerns the implications of progressive labor incometaxation for wage determination in dynamic general equilibrium.The main purpose is to analyze the general equilibrium effectsof increased tax progressivity in terms of the responses inthe real wage rate, employment, the capital stock, output andconsumption. Among the results, we find that increased tax progressivityincreases the real wage rate and decreases employment underboth union and competitive wage formation.     

The minimum wage in an adverse selection economy

This paper examines the welfare implications of minimum wagelegislation in a simple two-sector model, in which greater effortis required to produce in the higher productivity sector andindividual ability is private. An adverse selection distortionarises so that, without a minimum wage, too many workers workin the primary sector because of the high wage based on averageability. These workers produce relatively little, while exertingeffort. The paper shows that a minimum wage, in the low-productivitysector, can correct this distortion but may lower welfare.     

The Effect of the Tipped Minimum Wage on Employees in the U.S. Restaurant Industry

According to federal law in 2013, employers can take a credit of up to $5.12 for tips received by workers in satisfying the minimum‐wage requirement of $7.25. This article uses interstate variation in laws regarding tip credits and minimum wages to identify the effects of reducing or eliminating the tip credit on employment, hours, and earnings in the U.S. restaurant industry. Using data from the Quarterly Census of Employment and Wages and the Current Population Survey, we find that a reduction in the tip credit increases weekly earnings but reduces employment in the full‐service restaurant industry and for tipped workers. The results are robust to controls for spatial heterogeneity in employment trends and are supported by a series of falsification tests.     

Cross‐Country Evidence on Labor Market Institutions and Young Adult Employment through the Financial Crisis

I develop and analyze a set of cross‐country facts regarding employment and wage setting institutions over the decade surrounding the 2008 financial crisis. Among long‐industrialized countries, young adult employment declined more than prime age employment over this time period. I show that differences in countries' wage setting institutions strongly predict variations in the magnitude of declines in young adult employment. Both unconditionally and conditional on changes in macroeconomic conditions, young adult employment declined 5 percentage points less in countries where wage setting is driven by collective bargaining arrangements than in countries with statutory wage floors. Evidence on the evolution of legislated minimum wage rates and of an asymmetry in the relationship between growth and young adult employment suggest an important role for a standard “wage rigidity” mechanism.     

Minimum wage and employment in the fast food industry

Recent empirical studies on the impact of minimum wage legislation generate results that are inconsistent with conventional economic theory. Employing a methodology that compares affected with unaffected areas, these investigations indicate that employment levels are not adversely affected by the imposition of a minimum wage. Two studies in particular focus on the fast food industry. Although one study has come under attack for improperly measuring employment, an interesting theoretical question remains. This paper derives the demand for labor function of a fast food outlet facing price and profit margin constraints dictated by the company. The results of a minimum wage constraint are consistent with current empirical literature.     

The case of labour time reduction without wage compensation: More or less employment?

Summary In this paper a model of a closed economy, including a market sector and a public sector, is presented to analyse the consequences of a reduction of labour time with and without wage compensation. It turns out that a policy of labour time reduction without wage compensation is a very strong instrument to improve production and employment, if the economy is characterized by the Keynesiandemand model. But if the economy is characterized by the neoclassicalsupply model, a relatively large drop in wages is necessary to prevent a policy of labour time reduction from causing a process of stagflation.