Foreign capital,welfare and urban unemployment in the presence of agricultural dualism

In a two sector mobile capital Harris–Todaro model, such as [Corden, W.M., Findlay, R., 1975. Urban unemployment, intersectoral capital mobility, and development policy in a dual economy. Economica 42, 59–78], an inflow of foreign capital in the presence of protectionist policy is welfare deteriorating as well as unemployment accentuating. But, the developing countries have chosen liberalized investment and trade policies as their development strategies and have been able to attract a considerable amount of foreign capital during the last two decades. A relevant question is why these countries are yearning for foreign capital given its detrimental effects as predicted by the conventional theoretical literature on trade and development. This paper makes an attempt to address the above issue in terms of a three sector Harris–Todaro model with agricultural dualism and a non-traded final commodity. In the given setup, an inflow of foreign capital is likely to improve welfare and does not necessarily worsen the problem of unemployment. The paper may also be useful to explain as to why many of the developing economies have experienced ‘jobless growth’ in the liberalized regime.     

Minimum wage,trade and unemployment in general equilibrium

The path‐breaking work of Card and Krueger, showing that a higher minimum wage can increase employment, turned the age‐old conventional wisdom on its head. This paper demonstrates that this apparently paradoxical result is perfectly plausible in a competitive general equilibrium production structure of a small open economy with a non‐traded good, without recourse to monopsony, spatial heterogeneity, heterogeneity of consumers and so on, the usual theoretical drivers behind the result. Following Jones and Marjit, we build a simple general equilibrium model with production complementarity and we show that a higher minimum wage can raise aggregate employment. Expansion in the non‐traded sector following a wage hike may be consistent with the overall expansion of the export sector in a multi‐good framework, an unlikely outcome in a conventional two‐good model which cannot accommodate with production complementarity.     

Appropriation,firm dynamics,and wage inequality

This paper examines the income distribution and welfare effects of appropriation activities in an economy. In the short run, with a given number of firms, appropriation can narrow wage inequality between skilled and unskilled labor when the capital resources accrued by appropriators are not large. However, wage inequality widens when the capital accrued is large. In the long run, with free entry and exit of firms, an increase in appropriation can cause firms to enter when the accrued capital is not large. This gives rise to a win–win outcome by raising the wages of skilled and unskilled labor. However, if accrued capital is large, firms exit and a lose–lose situation may occur in which skilled and unskilled wages are reduced.     

Minimum wage rates and unemployment in The Netherlands

Summary A static limited dependent variable model is formulated to analyse the Dutch labour market from an individual's viewpoint. Results suggest that high minimum labour costs are an important source of unemployment. Secondly, the reduced-form participation equation is replaced by a neoclassical labour supply equation. Thus, also the effect of high minimum wage rates on employment through labour supply is taken into account. Supply appears to be forward bending and participation is insensitive with respect to unemployment benefits. Simulations suggest that the effect of lowering the productivity threshold by reducing before-tax minimum wages dominates supply effects.The author wishes to thank Geert Joosten, Arie Kapteyn, Peter Kooreman, Bertrand Melenberg, Viji Narendranathan and Theo Nijman for helpful comments and the Netherlands Central Bureau of Statistics for providing the data. The views expressed in this paper do not necessarily reflect the policies of the CBS.     

Capital market distortion,firm entry and wage inequality

Distortions in the capital market are notable in developing economies like China. By building up a dual production structure with oligopolistic competition in urban manufacturing, this paper investigates the distributional and welfare effects of capital market distortions. We find that in the short run, an increase in the capital market distortion in favor of urban firms can lower both the skilled and unskilled wages. However, in the long run, the preferential policy on reducing capital cost to the urban sector attracts new entry of firms, which can worsen the skilled-unskilled wage inequality in the economy. This firm-entry effect of the capital market distortion on wage inequality is empirically confirmed for China.     

Jobs with different wage determination mechanisms, social efficiency and unemployment

The purpose of this paper is to construct a theoretical framework for the labor market, which is composed of a variety of jobs with different wage determination mechanisms. We identify an equilibrium in which some firms post a wage and others bargain with workers. This paper shows that the proportion of firms adopting wage bargaining in a decentralized equilibrium is below the socially optimal level. We identify policies to increase this proportion and to improve social efficiency. Furthermore, we examine the impact of those policies on unemployment. The results of this study will determine the direction of employment policy on the labor market with various employment styles.     

Labour market inequality between men and women: Allocational differences versus wage rate differences

Summary This article discusses the question to what extent there are differences between men and women concerning the allocation of workers to jobs on the one hand and the remuneration for a given allocation on the other. Human capital variables do not only affect the allocation of men and women to job levels and job categories differently, they also have different effects on wage rates for men and women in given job levels and job categories. The wage gap between men and women partly stems from the fact that men and women have different personal characteristics, and partly from the different allocation of men and women to job levels and job categories. Besides, wage rate inequality stems from the different rewards for men and women with given characteristics. By decomposing the average wage rate difference between men and women it can be established that 40 percent of this difference can be attributed to differences concerning education, experience, and age; 28 percent to differences in the allocation of men and women to job levels and job categories, and 32 percent to higher rewards for men than for women with given characteristics.Economic Institute/Centre for Interdisciplinary Research on Labour Market and Distribution Issues (CIAV) Rijksuniversiteit Utrecht; Economic Institute/Centre for Interdisciplinary Research on Labour Market and Distribution Issues (CIAV), ijksuniversiteit Utrecht, and Netherlands Interdisciplinary Demographic Institute (NIDI), Den Haag. The authors wish to thank the Dutch Wage Bureau for making available the data, and Frank Kalshoven, Ingrid Plas and Yolanda Grift for their computational assistance.     

Residual wage inequality in urban China, 1995–2007

We use three waves of urban household survey from 1995 to 2007 to investigate the trends of residual inequality and its determinants. First, we find that the enlargement in both the overall and residual inequality was larger at the upper half of the wage distributions between 2002 and 2007. Between 1995 and 2002, however, it is the lower half that experienced larger increase in inequality. Second, by using two complementary semi-parametric methods, we find that composition effect is negligible. Instead, the change in skill prices plays a dominant role in the rise of residual inequality. Finally, by constructing a panel data at the city level, we find that ownership restructuring is an important factor that has caused the skill price to rise, especially in the earlier period. Another finding is that China's export share of GDP has a positive effect on the enlargement of residual wage inequality, especially in the period from 2002 to 2007.     

Industrialization and wage inequality in nineteenth-century urban America

What happened to wage inequality during American industrialization? This paper uses old and new data to address this question. The old data are in the form of pay ratios, while the new capture changes in the overall wage distribution, rather than in just the relative pay of workers at the top and bottom. Using payroll information from the Aldrich report for establishments in construction, railroads, and manufacturing, we calculate Theil indices for all production workers. These two data sets provide complementary information but suggest a common conclusion — namely that American wage inequality did not rise perceptibly over the nineteenth century.     

Foreign direct investment, intellectual property rights, and wage inequality in China

This article incorporates foreign direct investment (FDI) and product differentiation in a general equilibrium trade model. The analysis shows that freer trade and FDI will upgrade China's technology, improve its skills of labor, and increase the competitiveness of local firms in the international market. At the same time, the relative wage of skilled labor to unskilled labor will rise. The size of this rise will be affected by the degree of protection for intellectual property rights. These theoretical results are consistent with empirical evidence. The analysis provides insights in coordinating policies on FDI, labor market reform, and intellectual property rights protection.     

Vacancies,unemployment, and black and white wage earnings: 1956–1983

Utilizing recent developments in the literature on vacancies and unemployment, the effects of changes in the vacancy to unemployment ratio on black and white wage earnings are examined. The primary result argues that black women’s wage earnings are less sensitive to changes in the national vacancy to unemployment ratios than white earnings. Another way of interpreting this result is that black women are not experiencing wage gains when new jobs are created. This finding suggests that black women may not experience increases in earnings if the vacancy to unemployment ratio increases in the future.     

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.     

Tariffs,relative prices and wage inequality: Evidence from China

This paper, based on data from China after its membership into the World Trade Organization (WTO), shows the co-existence of a fluctuating skill premium and rises in wages for both skilled and unskilled labor. Our research provides one specific factor, the tariff reduction biased toward unskilled labor-intensive sectors, to explain and quantify the magnitudes of skill premium dynamics using the mandated-wage approach. The empirical evidence indicates that sector-biased tariff reductions have widened wage inequality in China through their effect on product prices. World price competition, on the other hand, has contributed to declining wage inequality via product prices, which is consistent with the endowment-based expectations of China's integration into the more skilled-labor abundant world.     

Education and the natural rate of unemployment

We show how changes in the educational composition of the labourforce affect both the level and the behaviour over time of aggregateunemployment series. We also demonstrate that if it had notbeen for such changes, the US unemployment series would look'European' since the within-group unemployment series all havethat same appearance. We derive a natural-rate model of unemploymentfor two education groups, providing microfoundations for inter-groupdifferences in wages and unemployment, and evaluate its plausibilityin light of microeconomic evidence.     

Global value chains,firms, and wage inequality: Evidence from China

How does participating or moving to more upstream in the global value chains (GVCs) affect the premium paid to skilled compared to unskilled labor within firms? In this paper, we develop a model of heterogeneous firms with intermediate trade and two skill inputs, in which we apply the fair wage hypothesis to predict the wage premium changes according to firms' GVCs activities. The model predicts that firms' backward GVC participation, as measured by the share of foreign value-added content in exports (FVAR), has an ambiguous impact on wage inequality of skills, which depends on the relative importance of “FVAR-labor substitution effect” and “FVAR-profit effect.” However, moving to upstream sectors in GVCs, as measured by the export varieties' upstreamness (or average distance from final use), raises a firm's wage premium. Using detailed Chinese firm-level data from 2000 to 2006, we develop a Mincer-type empirical model to study the wage premium changes associated with FVAR and upstreamness. We find robust empirical evidence that the rise of wage inequality in China mainly arises from moving to more upstream sectors rather than changing GVC participation.     

Upstreamness,exports, and wage inequality: Evidence from Chinese manufacturing data

In this paper we investigate within-firm wage inequality across heterogeneous industries that hold different positions in the domestic value chain, and across heterogeneous firms that have different exposure to trade. We find that the wage inequality problem is more severe in upstream industries than in downstream ones, and among firms with greater exposure to trade (i.e., larger export share of sales). Our findings support both classic and new new trade theories on wage inequality. In downstream industries where Chinese firms are typically engaged in processing and assembly work with intensive use of unskilled labor, trade leads to less wage inequality within firms. However, trade also introduces pro-competitive effects which usually benefit exporters and their skilled labor. The results hold after various checks and controls for robustness.     

Trade,technology, and the labour market: impacts on wage inequality within countries

This paper focuses on the widening wage inequality between skilled and unskilled workers within countries and discusses whether trade and technology have contributed to this trend. The paper develops an analytical framework for wage inequality that traces the determinants and their relative roles in wage inequality in different stages of the development of trade theory, especially those considering new evidence after 2011. We find that technology plays a key role in the rise of wage inequality in most countries, while trade plays an increasingly crucial and more complex role in recent years. Skill supply institutions, such as education systems supplying skilled labour or unions participating in wage‐setting processes, suppress the rise of wage inequality in some countries. The paper further outlines the mechanisms through which trade affects wage inequality, including offshoring, firm heterogeneity, labour market frictions and global value chains. We find that trade has indirect effects on technology, which further enlarges the wage inequality among skills. The paper also discusses the policy implications of the impacts of trade and technology on wage inequality.     

Labour unions and wage inequality among African men in South Africa

One Achilles' heel of post-Apartheid South Africa is the growing intra-racial income inequality, particularly among Africans. This paper examines the role of labour unions in explaining this phenomenon among African men given that labour markets are at the core of income inequality in South Africa. Using cross-sectional data drawn from Labour Force Surveys for 2001–10, we find a monotonically declining union wage premium. Further, our results indicate that unions have both compressionary and disequalising effects on wages. The disequalising effect dominates the compressionary effect, suggesting that unions have a net effect of increasing wage inequality among African men in South Africa. This finding implies that there is scope for unions to reduce inequality through initiatives that promote wage compression.     

Multinational companies and wage inequality in the host country: The case of Ireland

Multinational Companies and Wage Inequality in the Host Country: The Case of Ireland. — In this paper, the authors analyze the impact of multinational companies on wage inequality in a host country. Based on a model, in which the introduction of new technologies leads to increases in the demand for skilled labour and, therefore, to rising wage inequality, they econometrically study the Irish manufacturing sector between 1979 and 1995. They examine inequality between wages for skilled and unskilled labour within the same manufacturing sector. Their results indicate that there is an inverted-U relationship between wage inequality and multinationals, i.e., with the increasing presence of multinationals, wage inequality first increases, reaches a maximum, and decreases eventually.