Egalitarian wage policies, unemployment and skill-biased technological change

A popular explanation for the rise in European unemployment during the past decades is that relative wages failed to adjust to changes in relative productivities. Many economists reject this hypothesis on the ground that the ratios of low- to high-skill unemployment did not increase. Building on a search model, I argue that relative unemployment rates are affected by skill-neutral, as well as skill-biased shocks; hence stable ratios are theoretically consistent with a mix of skill-biased and skill-neutral shocks. Yet, numerical exercises confirm that wage rigidity in the face of skill-biased shocks probably did not explain much of the European unemployment experience.     

Investment-specific technological change, skill accumulation, and wage inequality

Wage inequality between education groups in the United States has increased substantially since the early 1980s. The relative number of college-educated workers has also increased dramatically in the postwar period. This paper presents a unified framework where the dynamics of both skill accumulation and wage inequality arise as an equilibrium outcome driven by measured investment-specific technological change. Working through equipment–skill complementarity and endogenous skill accumulation, the model does well in capturing the steady growth in the relative quantity of skilled labor during the postwar period and the substantial rise in wage inequality after the early 1980s. Based on the calibrated model, we examine the quantitative effects of some hypothetical tax-policy reforms on skill accumulation, wage inequality, and welfare.     

Looking back, looking ahead: Biased technological change, substitution and the wage gap

The implications of ICT on wage inequality are studied by applying a CES production function with skilled and unskilled labour. Skill-biased technological change increases wage inequality. The result is reinforced in a two-sector general equilibrium model if the income elasticity of the demand for high-tech goods and the elasticity of substitution between final goods are larger than one.     

International trade,technological change and wage inequality in the UK economy

This paper examines the joint impact of international trade and technological change on UK wages across different skill groups. International trade is measured as changes in product prices and technological change as total factor productivity (TFP) growth. We take account of a multi-sector and multi-factor of production economy and use mandated wage methodology in order to create an well-balanced approach in terms of theoretical and empirical cohesion. We use data from the EU KLEMS database and analyse the impact of both product price changes and TFP changes of 11 UK manufacturing sectors on factor rewards of high-, medium- and low-skilled workers. Results show that real wages of skill groups are significantly driven by the sector bias of price change and TFP growth of several sectors of production. Furthermore, we estimate the share of the three different skill groups on added value for each year from 1970 to 2005. The shares indicate structural change in the UK economy. Results show a structural change owing to decreasing shares of low-skilled workers and increasing shares of medium-skilled and high-skilled workers over the years.     

Training, search and wage dispersion

This paper combines on-the-job search and human capital theory to study the coexistence of firm-funded general training and frequent job turnovers. Although ex ante identical, firms differ in their training decisions. The model generates correlations between various firm characteristics that are consistent with the data. Wage dispersion exists among ex ante identical workers because workers of the same productivity are paid differently across firms, and because workers differ in their productivity ex post. Endogenous training breaks the perfect correlation between work experience and human capital, which yields new insights on wage dispersion and wage dynamics.     

Frictional wage dispersion with Bertrand competition: An assessment

I examine whether a version of the Cahuc et al. (2006) model can match the magnitude of wage dispersion, as measured by the ratio of the average and the lowest wage — the so-called mean-min ratio of Hornstein et al. (2011). I find that the workers? bargaining power is a crucial parameter: the mean-min ratio strictly decreases in the bargaining power up to a point near 1/2 and is essentially flat thereafter, generating the same amount of wage dispersion as the canonical wage ladder model, which is a special case of the CPVR model. Consequently, this model can yield large wage dispersion only for low bargaining power on the workers? side. I show that the share of job-to-job transitions with wage drops is decreasing in the bargaining power, calibrate the latter to the former, and demonstrate that the CPVR model generates an empirically plausible amount of wage dispersion. I also show that negative wages arise when workers have no bargaining power, and discuss the implications for the empirical findings of Postel-Vinay and Robin (2002b).     

Holdup and wage dispersion

This paper provides a search-theoretic model of the labor market, in which large firms hire workers sequentially and wages are bargained with full commitment. The firm's optimal vacancy-posting strategy trades off the fact that a larger size decreases marginal benefits from subsequent jobs, but avoids higher future recruiting costs attributable to the holdup effect. The holdup effect is dominant if the production function is not sufficiently concave, resulting in firm-size wage premium. The equilibrium features wage dispersion both within and between firms. When calibrated to the U.S. data, the extended model accounts for 67%–84% of the observed wage dispersion, among which 13%–27% is attributed to the holdup effect.     

Job protection laws and agency problems under asymmetric information

Under symmetric information, a job protection law which says that a principal who has hired an agent today must also employ him tomorrow can only reduce the two parties’ total surplus. The law restricts the principal's possibilities to maximize her profit, which equals the total surplus, because she leaves no rent to the agent. However, under asymmetric information, a principal must leave a rent to her agent, and hence profit maximization is no longer equivalent to surplus maximization. Therefore, a job protection law can increase the expected total surplus by restricting the principal's possibilities to inefficiently reduce the agent's rent.     

Job search,wage offers,and unemployment insurance

Several previous studies have estimated that unemployment insurance (UI) causes an increase in the duration of unemployment and have concluded from this that UI raises reservation wages. However, job-search theory implies that UI can also affect duration through its impact on job offer arrival rates and/or through an impact on wage offers. In this paper we attempt to identify these possible additional effects using survey data on a sample of unemployed individuals. Like previous studies, we find that UI significantly increases unemployment duration. However, part of this effect is estimated to stem from a decrease in the offer arrival rate as well as from a higher reservation wage.     

Education,mobility and the college wage premium

Motivated by large educational differences in geographic mobility, this paper considers a simple dynamic extension of Roy׳s (1951) model and analyzes it using new evidence on net versus excess mobility and the individual-level relationship between mobility and wages. According to the model, the dispersion of a labor income shock specific to a worker-location match is greater for more educated workers and accounts for large educational differences in mobility. In the model, labor mobility raises both the average wage and the college wage premium, a prediction consistent with differences between Europe and the U.S.     

Sharing budgetary austerity under free mobility and asymmetric information: An optimal regulation approach to fiscal federalism

In the present article, Tiebout meets Laffont and Tirole in the land of fiscal federalism. A non-trivial Principal–Multi-Agent model is used to characterize the optimal intergovernmental grant schedule, when the cost of local public goods depends on hidden characteristics and actions of local governments, and under citizen free mobility. We show how informational rents, landlords' interests, and citizen mobility interact to produce distortions at both ends of the type space: in particular the most efficient jurisdictions should overproduce and overtax in second-best optimum. Informational asymmetries decrease the average production of public goods and increase the inter-jurisdictional variance of taxes and public-good production.     

Changes in wage inequality in Canada: An interprovincial perspective

This paper uses the Canadian Labour Force Survey to understand why the level and dispersion of wages have evolved differently across provinces from 1997 to 2013. The faster increase in the level of wages and the decline in wage dispersion in Newfoundland, Saskatchewan and Alberta are the starkest interprovincial differences. We find that they are accounted for by the growth in the extractive resources sectors, which benefited less‐educated and younger workers the most. Increases in minimum wages since 2005 are found to be the main reason why wages at the very bottom grew more than those in the middle of the distribution.     

Localized technological change, new information technology and the knowledge-based economy: The European evidence

This work analyzes the co-evolution of new information and communication technologies and the knowledge-intensive business industry. New information technology affects the actual conditions of information, its basic characteristics of appropriation and tradability, favouring the role of business services as forces of interaction between knowledge components in the generation of new technology. Empirical analyses, based on input/output statistics of the European economy in the second half of 1980's, demonstrate the existence of a correlation between the usage of business and communication services and confirm their high output elasticity.     

Technological learning,technological substitution,and technological change

From a simple dynamic model of competition between product lines it is shown that the shape of learning curves has a powerful influence on the dynamics of technological substitution. Learning of both production efficiency and marketing efficiency is considered. It is asserted that both types of learning are important and that the two are complementary. It is further speculated that production learning is probably more important for commodities and in situations of low per capita income, whereas market learning gains ascendancy in cases of high income and specialized and diversified product lines. In closing, it is noted that simple competitive models are misleading, first because complementarities and coevolutionary processes are probably as important in the overall development of technology as are competitive processes, and second because optimization of the technological system's parts does not guarantee improvement of the performance of the system as a whole.     

Downward wage rigidity and job mobility

Using data from the German Socio-Economic Panel (GSOEP) we study whether being individually affected by downward wage rigidity has an effect on layoffs, quits and intra-firm mobility. Within a structural empirical model we estimate the individual extent of wage rigidity. This is expressed by the wage sweep-up, which measures by how much individual wage growth increases through the effect of downward wage rigidity when compared to a counterfactual labour market with flexible wage setting. We find robust negative effects of wage sweep-up on quits and layoffs and some evidence for a positive association of wage sweep-up and promotion opportunities. This is consistent with a core-periphery view of the labour force, where a core work force is protected from layoffs and wage cuts and at the same time enjoys good promotion opportunities. On the other side a peripheral work force provides a buffer for adjustment and suffers from both flexible wages, more insecure jobs and less internal promotion opportunities.      

Green technological progress,agricultural modernization,and wage inequality: Lessons from China

Green technological progress (GTP) is crucial for environmental protection and economic growth in China. Over the past decades, China made huge GTP which exerts a far-reaching consequence on economic and social development. However, a paucity of research investigates the distributional effect of GTP. Meanwhile, we incorporate agricultural producer service sector into a three-sector general equilibrium model to reflect the modernization of small-scale agriculture. The agricultural producer service sector that acts as an intermediate sector can facilitate the utilization of intermediate inputs indirectly. To desalinate this process, a two-layer vertical production structure is established: parts of manufacturing goods are utilized by the service sector, outputs of which are intermediate inputs that could substitute labor in agriculture. Theoretical analysis shows that GTP increases both wage of skilled labor and unskilled labor. Nevertheless, GTP generates a greater impact on the wage of skilled labor than unskilled labor, leading to widening income disparity. Then, we examine the impact of GTP on wage inequality using a balanced panel data covering 30 provincial units in China during 2000–2019. In line with our theoretical conjecture, we find strong supportive evidences that GTP significantly widens the wage inequality.     

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.     

Prometheus rebound: An inquiry into technological growth and psychological change

Western Man's philosophy of power over nature has led to the present excesses of technology. The technological environment in turn, has had profound and questionable influence on the human physiological and psychological organism—resulting frequently in both personal and social breakdown. The body-mind needs a new kind of nurturing and educational process involving the potentiation of latent human capacities if it is to successfully withstand and recreate the technological process, as well as facilitate a more humane use of human beings.     

Job mismatches and career mobility

Does over-education assist or hinder occupational advancement? Career mobility theory hypothesizes that over-education leads to a higher level of occupational advancement and wage growth over time, with mixed international empirical evidence. This paper re-tests career mobility theory directly using a rich Australian longitudinal data set. A dynamic random effects probit model is employed to examine upward occupational mobility, considering two-digit occupational rank advancement and wage growth over three-year intervals. The ‘Household, Income and Labour Dynamics in Australia’ data across nine years are employed, and a Mundlak correction model is adopted to adjust for unobserved heterogeneity effects and potential endogeneity, both of which are important to over-education analysis. Contrary to career theory, the results point to job mismatch as an economic concern rather than a passing phase, regardless of whether or not workers are skill-matched. Results further show the importance of adjusting for endogeneity.