Firm specific human capital and unemployment in a growing economy

This study analyzes how the intensive use of firm specific human capital in firms affects the unemployment rate. For this purpose, I introduce into an equilibrium search model the possibility that workers quit their jobs. A worker changes his job when a firm that newly enters into the market offers a higher wage than his current wage. If firm specific human capital is important, it is difficult for a worker to quit his job, and, in consequence, the number of workers who quit their jobs is small. Thus, the unemployment rate is low. If the speed of technology obsolescence is high, the unemployment rate is high.     

Efficiency Wages,Interfirm Comparison,and Unemployment

The paper presents an efficiency wage model where worker effort depends on own wages relative both to wages of other workers in the firm and to similar workers in other firms. First, we show how the Solow conditions are modified if internal comparison effects are at work. Second, we discuss the effect of internal wage comparison on wage inequality within firms. Third, we study unemployment and relative wage determination within a general equilibrium model, and analyze the effect of technological change and various tax policies on equilibrium unemployment and relative wages. Finally, the short-run effects of aggregate demand shocks are analyzed.     

Catching hipos: screening, wages, and competing for a job

In this paper, I study the wage a firm sets to attract highability workers (hipos) in situations where people compete fora job. I show that the more people compete, the larger a firm'sincentives to sort high and low ability workers. Moreover, workerswill signal their (high) ability in situations with many competitorsonly if a job offers a high enough wage. The main result, therefore,is that a firm sets higher wages, when more people compete.     

Institutional wage-setting,labour demand and labour supply: Causal estimates from a South African pseudo-panel

Unemployment in South Africa has multiple causes. This article uses a district pseudo-panel to estimate the elasticity of labour demand, labour supply and unemployment with respect to wages. We assess whether hiring decisions are more sensitive to increases in wages of low-paid workers than high-paid workers, and whether wage growth prompts entry into the labour market. These channels combine to result in the positive causal effect of wage growth on unemployment. The research investigates whether these effects are dominated by districts in which unionisation rates are high and employment is concentrated in large firms. Wage growth of middle-paid to highly paid workers – as opposed to low-paid workers – reduces local labour demand and raises local unemployment. Bargaining arrangements correspond closely to the spatial wage distribution; in turn, a large part of the impact that wage growth has on labour market outcomes is determined by these wage-setting institutions.     

Export Activity,Firm Size and Wage Structure: Evidence from Taiwanese Manufacturing Firms*

This study adopts a semiparametric smooth coefficient model to evaluate the export–wage premiums, firm size–wage premiums, and the wage gap between skilled and unskilled labor. Particular focus is placed upon widespread evidence indicating that pay levels in ‘large’ and ‘export‐oriented’ firms are higher than in their ‘small’ and ‘domestic‐oriented’ counterparts. Applying the firm‐level data for Taiwanese manufacturing firms, we find a positive export–wage premium for skilled workers and a negative export–wage premium for unskilled workers. The hypothesis of a constant export premium across firm size is rejected. While most of the export–wage premiums for skilled labor can be attributed to the small and medium firms, the large exporting firms have a significant adverse effect on wages for unskilled labor. Moreover, our results suggest that the firm size–wage premiums for skilled workers are larger than those for unskilled workers. The wage gap between the two skill groups is also sensitive to size categories.     

Unemployment with trade and firm heterogeneity

By specifying the setting of the footloose capital model with firm heterogeneity, this paper examines the effects of trade liberalization on unemployment through two different mechanisms: firstly, we embed search frictions into the labor market; and secondly, we consider fair wages as the source of unemployment. In the model with search frictions, we find that both the expected wage and employment rate could be higher for a small country with better search technology. In the fair wage setting, the results show that an increase in trade freeness increases the unemployment rate of the large (small) country when the trade freeness is sufficiently high (low). Finally, we try to compare the welfare levels under different scenarios and discover that unemployment may lead to a deterioration in the welfare gains from trade.     

The wage impact of undocumented workers: Evidence from administrative data

Using administrative, individual level, longitudinal data from the state of Georgia, this article finds that rising shares of undocumented workers results in higher earnings for documented workers, but by a small amount. A one percentage point increase in the share of undocumented workers in a documented worker's county/industry results in an average wage boost of 0.44%. Within the firm, a one percentage point increase in the percent of undocumented workers employed by the firm boosts wages by 0.09% (0.11, 0.12, and 0.04 in low, medium, and high skill firms, respectively). Potential explanations for a positive wage impact are discussed.     

Unemployment in LDCs: Worker heterogeneity, screening, and quantity constraints

Unemployment in many less developed countries is characterized by a significant urban-rural wage differential coexisting with high urban unemployment. This may be consistent with optimization when there is imperfect information about a worker's ability, and abilities are heterogeneous. Firms know only the average quality of workers in the labour pool. High urban wages induce immigration of workers from rural areas, improving the average quality of the urban labour pool which has been depleted of high ability workers by previous screening. Hence, both sides of the market way find high non-market-clearing wages optimal. Quantity constraints from imperfect capital markets may strengthen this effect.     

Inequality,poverty and prospects for redistribution

This paper demonstrates that poverty and inequality trends can diverge. It then discusses inequality trends and shows that, despite measurement issues, there is consensus that inequality is very high and has been rising over much of the post-transition period. Due to rising inequality within all groups, and particularly the black population, and lower inequality between race groups, within-group inequality has become the dominant form of inequality. That does not, however, detract from the fact that inequality between groups is still very large. High income inequality largely stems from inequality in access to wage income, due more to wage inequality than to unemployment. A Gini coefficient for wage income amongst the employed of above 0.60 effectively sets a floor to overall income inequality. The high wage premium to educated workers derives from a combination of a skills shortage at the top end of the educational spectrum, driving up their wages, and a surfeit of poorly-educated workers competing for scarce unskilled jobs dampening unskilled wages; if the unemployed were to find jobs, it would be in this bottom part of the wage distribution, and consequently this would not much reduce wage inequality. A continuation of the historical pattern whereby only a small segment of the population obtained good schooling would leave the structures underlying the large wage premium unaltered. The time frame for substantial inequality reduction is thus necessarily a long one, while poverty reduction efforts should not wait for this to occur.     

Product market competition, unemployment and income disparities

Product Market Competition, Unemployment and Income Disparities. — We discuss how promoting competition in product markets affects unemployment and wage differentials. We examine a general equilibrium model with real wage rigidities in labor markets and market power in product markets. We illustrate how more intense competition reduces unemployment. A decrease of markups would induce an increase of real wages if real wages were flexible. This enables the employment of more low-skilled people above a real reservation wage. More intensive competition, however, widens wage and income differences between low-skilled and high-skilled workers. Differences of income distributions across countries could also be caused by differences in the intensity of product market competition.     

The minimum wage,exports, and firm performance: Evidence from Indonesia

This paper examines the interrelationship between changes in the provincial minimum wage, firms’ export behavior, and firms’ performance in Indonesia. In this regard, we apply a two-stage least squares regression analysis to detailed firm-level data of manufacturing enterprises during 2002–2014. We find that an increase in the minimum wage is associated with a decrease in a firm’s employment and productivity, but increase in its probability of exporting and markup. We also use the 2012 minimum wage reform in Indonesia to conduct a difference-in-difference analysis to further mitigate the potential endogeneity of minimum wage regulation. Our findings are generally robust to alternative estimation methods. Moreover, quantile regression results indicate that the average wage, firm size, and the education level of workers also affect the predictions. Above all, this study suggests that Indonesian exports and the country’s comparative advantage in international markets are not negligibly affected by higher labor costs caused by the growth in the minimum wage.     

Wage inequality and firm performance: Professional basketball's natural experiment

The purpose of this inquiry is to utilize a natural experiment from professional basketball to examine how wage inequality impacts the productivity of the firm. The literature suggests that wage inequality may promote firm productivity if higher wages are necessary to limit the damage potential of certain workers. In contrast, other writers have trumpeted the productivity gains from worker cooperation and thus, argued that wage disparity lowers firm output. During the 1990s, the National Basketball Association experienced dramatic increases in the level of wage inequality. The empirical evidence reported here supports a third possibility. Specifically, wage inequality and firm productivity are not related.     

Labour market segmentation: Evidence from Cyprus

Labour market segmentation (LMS) is thought to generate poverty and inequality and its existence has been often documented by estimated earnings functions identified by such endogenous income-determining factors as occupation, firm size and sector. Past research is open to the criticism that it ignores the extent to which workers are able to gain access to the high wage segments of the labour market. The paper investigates various dimensions of LMS in Cyprus and shows that the market is segmented by sex, an exogenous factor, as well as by the endogenous factors of public/private sectors of employment and firm size. Evidence is presented to show how the Cyprus labour market operates to erect barriers which serve to restrict access of workers to the high wage segments.     

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.     

Unionization,market structure,and economic growth

This article investigates the macroeconomic effects of unionization in a Schumpeterian growth model with an endogenous product market structure and a unionized labor market. The endogeneity of the market structure and the trade unionism of the labor market interact and jointly determine the equilibrium unemployment, firm size, number of firms, economic growth, and distribution of income between workers and firms. We show that unionization governs the distribution of income between workers and firms and the unemployment rate, but it does not give rise to any growth effect on the economy. In addition, unionization discourages potential entrants and hence decreases the equilibrium number of firms. These results echo the empirical observation in the sense that unionization raises unemployment and alters the distribution of income between workers and firms, but it does not give rise to a significant, real impact on the firms’ investment and the economy‐wide growth.     

Unemployment trends in some American cities with living wage ordinances

By early 2003, more than 90 American cities and counties have passed laws, called Living Wage Ordinances, which require companies that have contracts with these municipalities and/or receive tax subsidies to pay their workers a wage above the federal minimum rate. The levels of these wages and the types of workers who are affected by these living wage ordinances are reviewed. Also examined are the major arguments for and against these laws. This study looks at the trends in unemployment rates in 40 cities that have enacted Living Wage Ordinances. Each city's unemployment rate is compared to that in its metropolitan area, its state, and the nation. The study reveals that experiences are mixed. Some cities with living wage ordinances have experienced an improvement in their relative employment situation. Other cities have experienced just the opposite.     

Race and sex differences in the effects of early unemployment on wages

Youth unemployment is shown to have significant depressing effects on black long-run earnings over and above the loss in work experience which accompanies unemployment. Estimates were similar for men and women, showing that for each week of unemployment black youth incurred early in their work careers, wages were reduced by about one half a percentage point five years later. A six month bout with unemployment in 1979 was related to a 13 percent drop in wage rates five years later. For white youth, joblessness, but not unemployment per se, had a significant negative impact on subsequent wage rates.     

Product market competition, job security, and aggregate employment

Standard economic wisdom generally stresses the benefits ofincreased competition on the product market. This paper proposesa model of monopolistic competition with an endogenous determinationof workers flows in and out of unemployment, where wages aredetermined according to an efficiency wage mechanism. We showthat an increase in product market competition boosts the hiringrate as well as the separation rate thus reducing job security.Hence, the efficiency wage schedule compatible with more competitionshifts upward. An adverse effect on workers' incentive is atwork which pushes real wages up to the point that increasedcompetition may indeed generate employment losses rather thangains.     

Why Do Foreign-Owned Firms Pay More? The Role of On-the-Job Training

While foreign-owned firms have consistently been found to pay higher wages than domestic firms to what appear to be equally productive workers, the causes of this remain unresolved. In a two-period bargaining framework we show that if training is more productive and specific in foreign firms, foreign firm workers will have a steeper wage profile and thus acquire a premium over time. Using a rich employer-employee matched data set we verify that the foreign wage premium is only acquired by workers over time spent in the firm and only by those that receive on-the-job training, thus providing empirical support for a firm-specific human capital acquisition explanation. JEL no. F23, J24     

A Classroom Unemployment Compensation Experiment

This classroom experiment demonstrates how unemployment compensation can affect unemployment rates and wages. Students take the roles of workers and employers who use double oral auction labor markets to negotiate employment contracts. The instructor takes the role of a government that offers progressively higher levels of unemployment compensation. The experiment generates data that students can analyze to test the general predictive power of economic theory. Students also use their data to test the specific hypothesis that higher unemployment compensation increases the unemployment rate and causes wage compression.