Wage differentials across sectors in Europe

Using a unique harmonized linked employer–employee dataset, this paper analyses the structure and determinants of inter‐industry wage differentials in Central and Eastern European countries (Czech Republic, Latvia, Lithuania and Poland) and compares them to those observed in Western European states. Findings show substantial differences in earnings across sectors in all countries, even when controlling for a wide range of employee, job and employer characteristics. The hierarchy of sectors in terms of wages appears to be quite similar in Eastern and Western European countries, although the former tend to have higher levels of dispersion of inter‐industry wage differentials.     

Wage inequality, technology, and trade

The recent widening of wage inequality has been attributed by some to skill-biased-technical-change and by others to trade liberalization. This paper examines the two explanations within a unified model and also presents a new modeling of skill-biased-technical-change, where skilled workers replace unskilled ones. As a result technology adoption is endogenous and does not occur in all countries. Hence, wages for both types of workers, trade patterns and also factor productivities in all countries are endogenously determined. The model sheds light on the relationship between technology and trade, on the reasons for global productivity differences and on the causes for the recent rise in wage inequality.     

Social class, family background, and intergenerational mobility

This research examines the various approaches taken by economists and sociologists for analyzing intergenerational mobility. Social mobility models based on social classes arising from an occupational classification scheme are analysed. A test for the statistical validity of classification schemes is proposed and tested using Danish sample survey data that was first collected in 1976 and augmented in 2000. This is referred to as a homogeneity test and is a likelihood ratio test of a set of linear restrictions which define social classes. For Denmark it is shown that this test fails for an Erikson-Goldthorpe classification system, raising doubts about the statistical validity of occupational classification systems in general. We also estimate regression models of occupational earnings, household earnings, and educational attainment using family background variables as covariates controlling for unobservables, measurement error, and simultaneous equation bias. In these models homogeneity tests are also rejected. We conclude from these results that the individual's family background has a small but significant impact on lifetime chances which is not captured by the Erikson-Goldthorpe classification scheme.     

Social class, family background, and intergenerational mobility: A comment on Mcintosh and Munk

McIntosh and Munk claim that the class schema developed by Erikson and Goldthorpe lacks validity and should not be taken as a basis for studies of intergenerational social mobility. Their paper is founded on a serious misconception of why the schema is in fact used by sociologists in mobility research and, for this reason, their test of its validity is essentially misdirected. In addition, the test itself is not carried out in an appropriate way nor, it would seem, with data of adequate quality.     

Wage Inequality and Wage Mobility in Europe

Using data from the European Union Statistics on Income and Living Conditions, this paper investigates wage inequality and wage mobility in Europe. Decomposing inequality into within‐ and between‐group inequality, we analyze to what extent wage inequality and mobility can be explained by observable characteristics. Furthermore, we investigate which individual and household characteristics determine transitions within the wage distribution. We find that overall, mobility reduces wage inequality. While a large part of wage inequality is due to unobservable characteristics, the equalizing effect of mobility mainly occurs within groups. Furthermore, both personal and household characteristics play an important role for wage transitions. Finally, our findings reveal large cross‐country differences across Europe.     

Testing for discrimination: Evidence from the game show Street Smarts

This paper conducts two alternative tests of discrimination in the game show Street Smarts, which both exploit the unique setup of the game to determine why discrimination occurs. The results indicate non-black contestants have a lower prior perception of the skill level of blacks relative to non-blacks in answering the average question in the game. When results are stratified by question category, one finds that non-black contestants perceive blacks and non-blacks to have equal ability in answering general knowledge questions. However, they perceive blacks to have a lower ability in answering miscellaneous, entertainment, and slang/common saying questions.     

Gender wage differentials and discrimination in Korea: comparison by knowledge intensity of industries

This study estimates the relative size of the non-productivity-related gender wage gap across industries with differing knowledge intensities. More specifically, a gender wage premium was estimated from a modified Mincerian earnings equation, and an Oaxaca's discrimination coefficient was computed. Empirical evidence indicates that gender wage differentials tend to be less subject to potential discrimination in knowledge-based industries than in other industries with lower knowledge intensity. The estimated discrimination effect is least noticeable in top hierarchical occupations such as professionals and technicians, while it is most sizeable in production workers and sales/service workers, regardless of industrial affiliation.     

Wage Rigidity,Inflation, and Institutions

We study the possible existence of downward nominal wage rigidity (DNWR) at wage growth rates different from zero in aggregate data. Even if DNWR prevails at zero for individual workers, compositional effects might lead to falling aggregate wages, while changes in relative wages combined with DNWR might lead to positive aggregate wage growth. We explore industry data for 19 OECD countries, over the 1971–2006 period. We find evidence for a floor on nominal wage growth at 6 percent in the 1970s and 1980s, at 1 percent in the 1990s, and at 0.5 percent in the 2000s. Furthermore, we find that DNWR is stronger in country‐years with strict employment protection legislation, high union density, centralized wage setting, and high inflation.     

Migration, unemployment and discrimination

This paper uses a dynamic efficiency-wage model to analyze the consequences of immigration for a small country when there is discrimination against immigrants in a dual labor market with unemployment. Discrimination is of the type ‘equal pay for equal work, but unequal work’ which is characteristic of economies with ‘guest-worker’ systems. The model exhibits three regimes for rising immigration levels. Immigration is most beneficial for natives in the intermediate regime. An analysis of regime switches shows that changes attributable to ‘globalization’ and technical progress are consistent with growing opposition to immigration.     

Participation,Recruitment Selection,and the Minimum Wage

In this paper, we re‐examine the efficiency of participation with heterogeneous workers in a search‐matching model with bargained wages and free entry. Assuming that firms hire their best applicants, we show that participation is always too low. The reason for this is a hold‐up phenomenon: to be active, a worker must pay the entire search cost whereas part of the gain from this investment goes to the firm. As a consequence, introducing a (small) minimum wage raises participation, job creation, and employment. Therefore, net aggregate income of the economy is increased.     

Return migration, human capital accumulation and the brain drain

In this paper we present a model that explains migrations as decisions that respond to where human capital can be acquired more efficiently, and where the return to human capital is highest. The basic framework is a dynamic Roy model in which a worker possesses two distinct skills that can be augmented by learning by doing. There are different implicit prices, in different countries and different rates of skill accumulation. Our analysis contributes to the literature on the selection of immigrants and return migrants by offering a richer framework that may help to accommodate selection of emigrants and return migrants that are not immediately compatible with the one-dimensional skill model. Our analysis also has implications for the debate on brain drain and brain gain. In the two skills model presented here, return migration can lead to a mitigation of the brain drain, or even the creation of a “brain gain”, where those who return bring the home country augmented local skills.     

Permanent versus transitory wage differentials and the inequality-hours hypothesis

This paper disentangles the effect of inequality in permanent and transitory wages on hours worked by, first, estimating the two components for Swedish industries and, second, using the resulting estimates as explanatory variables in an hours-worked equation. Consistent with Bell and Freeman’s (2001) inequality-hours hypothesis, permanent wage differentials are found to have a positive effect on individuals’ hours of work while transitory wage differentials have no effect. However, the analysis also shows that, in estimated hours-worked equations, inequality in observed wages is potentially a good approximation for inequality in permanent wages.     

Sexual orientation,work, and income in Canada

Abstract. We provide the first evidence on sexual orientation and economic outcomes in Canada using confidential data that ask adults a direct question about their sexual orientation. Gay men have 12% lower personal incomes and lesbians have 15% higher personal incomes than otherwise similar heterosexual men and women, respectively. Different labour force patterns can account for some of the income differentials. We also document large differences in educational attainment, childrearing, and urbanicity that generally mirror patterns found in the US. Finally, we show that applying couples‐based approaches common in this literature greatly overstates the magnitudes of gay/straight income gaps.     

The evolution of male-female earnings differentials in Canadian universities,1970–2001

Abstract .  The evolution of academic salaries and the gender earnings gap in Canadian universities is analysed using a unique Statistics Canada data set containing detailed information on all full-time teachers at Canadian universities over the period 1970 through 2001. Male salaries declined across cohorts, while female salaries remained stable; consequently, male-female earnings differentials have narrowed. Recent years have also seen increasing variation in academic salaries for both men and women. A gender earnings gap remains, the bulk of which can be explained by differences in men's and women's rank and field. The unexplained earnings gap has decreased over time.     

Distributional impacts of a local living wage increase with ability sorting

I develop a model of ability sorting of low-wage workers across multiple markets when one market substantially increases its wage floor using a living wage. The wage floor increase can increase or decrease employment probabilities in both covered and uncovered markets.     

Wage restraint and monetary union

Existing work on wage bargaining predicts more aggressive wage setting under monetary union. This is exemplified by Cukierman and Lippi (2001) who postulate that wages are set having area-wide prices in mind. The insight of aggressive wage behaviour has not been confirmed by the EMU experience, which has been characterised by wage moderation. The present paper investigates the possibility of wage restraint using a monetary union model which, realistically, assumes that trade unions set wages with national prices in mind. Drawing on plausible ranges for all parameter values (and macroeconomic shocks), our simulations show that a monetary union elicits real wages that are broadly comparable to those obtained under monetary autonomy. The confidence bounds around these results are rather wide, in particular including scenarios of wage restraint.     

On the efficiency of participation with vertically differentiated workers

In this journal Albrecht et al. (2010) assume that the planner problem is constrained by participation decisions. When this constraint is relaxed participation is too high whereas market tightness is too low. Subsidizing non-participants improves market efficiency and reduces unemployment.     

Economic transition,gender bias,and the distribution of earnings in China*

Market‐oriented economic reform, which accelerated after 1992, has brought substantial changes to the Chinese economy. This dramatic economic transition was raised two important questions: ‘How are women faring in the transition from a planned economy to a market economy?’ and ‘Are some women faring relatively better than other women’? We use data from the Chinese Household Income Projects for the years 1988 and 1995, a standard earnings equation, and quantile regressions to estimate and decompose the earnings gap. Our findings suggest that while the earnings gap has increased, the fraction of the gap ‘unexplained’ by differences in human capital variables such as education and experience has declined over time. This result is particularly pronounced for low earning women.     

The disappearing gay income penalty

Since 1995, labor economists have reported on the income disparities between individuals who engage in same-sex behavior and those that do not. Many of these papers report a significant wage penalty, while others find no effect, but few look at the trend over time. We find, using National Health and Examination Survey (NHANES) data from 1988 to 2007, that the income gap has reversed over time from a penalty to a premium.     

Wage distribution in Japan, 1989–2003

Abstract. This study examines the recent trend of the Japanese wage distribution based on a micro‐level data set from the Basic Survey on Wage Structure (1989–2003). We perform several decomposition analyses of changes in the distribution of the hourly wage. We observe that lower returns to education and years of tenure contribute to a diminishing income disparity between groups for both sexes. A larger variance within a group contributes to the wage disparity for males, while an increased heterogeneity of workers' attributes contributes to the wage disparity for females. The Dinardo, Fortin, and Lemieux decomposition confirms the basic findings with a parametric variance decomposition.