How can robots affect wage inequality?

We explain the simultaneous presence of i) increasing per capita output, ii) declining real wages of low-skilled workers, and iii) a rising wage premium of higher education within a model of economic growth in the age of automation. The theoretical implications are consistent with the data for the United States since the 1970s. Thus, automation contributes towards our understanding of the driving forces of rising inequality. The immediate policy conclusion is that investments in higher education can help to soften the negative effects of automation.     

Institutional quality and skilled–unskilled wage inequality

This paper establishes two-sector general equilibrium models in the presence of unproductive activities to investigate how an improvement of the institutional quality influences the skilled–unskilled wage inequality. We find that an improvement of the institutional quality will affect the interest rate, and then the interest rate combining with the capital intensity will generate an impact on the skilled–unskilled wage inequality. Specifically, both the interest rate and comparisons of the capital–labor relative distributive shares between two sectors play an important role in determining the skilled–unskilled wage gap in an economy featured with unproductive activities. The above results are robust even when we extend the basic theoretical model in several different ways.     

Male wage inequality and marital dissolution: Is there a link?

After almost a century‐long pattern of rising marital instability, divorce rates levelled off in 1980 and have been declining ever since. The timing of deceleration and decline in the rates of marital dissolution interestingly coincides with a period of substantial growth in wage inequality. This paper establishes a novel connection between the two phenomena and discusses potential explanations for the underlying link. Using female marital histories in a duration analysis framework combined with regional and temporal variation in the pattern of male wage dispersion, I show that inequality has a significant stabilizing effect on the marriage. Quantitatively, increases in male wage dispersion can roughly explain up to 30% of the fall in the mean separation probability between 1979 and 1990. Several plausible explanations are discussed: changes in spousal labour supplies, female wage inequality, income uncertainty, social capital as well as a hypothesis where inequality renders the option to divorce less attractive by making remarriage more difficult.     

Could immigration explain wage inequality in a skill-biased technological model?

The aim of this paper is to evaluate how immigration of high-skilled workers affects the technological-knowledge bias and, in turn, the skill premium in the host countries, in particular bearing in mind the recent experience in a number of European countries. We study a skill-biased dynamic general equilibrium R&D growth model in which the standard R&D technology is modified so wage inequality results from the direction of the technological knowledge, which in turn is induced by the price channel. By solving the transitional dynamics numerically, we show that the rise of the skill premium arises from the price-channel effect, complemented with a mechanism that reflects the impact of immigration on R&D. According to our quantitative results, our model is able to account for a significant proportion of the dynamics of the skill premium in the data for a number of European countries, thus, suggesting that differences in labour skills between immigrants and natives are, in practice, an important source of skill premium variation over time.     

Skilled–unskilled wage inequality and offshore outsourcing with asymmetric adjustment costs

We present a model that can capture the effects of offshore outsourcing on the wedge between the wages of skilled and unskilled workers when costs of adjustment are asymmetric. We identify conditions under which offshore outsourcing activities widen the skilled–unskilled wage inequality in the presence of asymmetric adjustment costs. We show how a higher cost of adjustment in the import-competing sector can magnify the offshore outsourcing induced gap between the wages of the skilled and unskilled workers. We also demonstrate the sensitivity of the effects of offshore outsourcing, on the skilled–unskilled wage gap, to asymmetries in the costs of adjustment.     

Effects of North–South trade on wage inequality and on human-capital accumulation

This paper develops an endogenous growth model with technological knowledge directed towards high- versus low-skilled labour, augmented with North–South international trade of intermediate goods and with human-capital accumulation, to analyse how trade affects wage inequality and the inter-country human-capital gap. Trade is a vehicle for inter-country technological-knowledge diffusion and human-capital accumulation interacts with the intra-country direction of technological knowledge arising from trade. In contrast with the market-size effect, stressed in the skill-biased technological change literature, the operation of the price channel following openness to trade predicts, in line with the recent trends in developed and developing countries, an increasing technological-knowledge bias towards high-skilled human capital. This, in turn, decreases inter-country gaps of technological knowledge and human capital and increases intra-country wage inequality. Also in line with recent empirical evidence, inter-country wage convergence is induced by the trade-opening level effect.     

Foreign capital inflow,skilled–unskilled wage inequality and unemployment of unskilled labour in a fair wage model

This paper has developed a three-sector general equilibrium framework that explains unemployment of both skilled and unskilled labour. Unemployment of unskilled labour is of the Harris–Todaro (1970) type while unemployment of skilled labour is caused due to the validity of the FWH in the high-skill sector. There are two types of capital one of which is specific to the primary export sector while the other moves freely among the different sectors. Inflows of foreign capital of either type unambiguously improve the economic conditions of the unskilled working class. However, the effects on the skilled–unskilled wage inequality and the extent of unemployment of both types of labour crucially hinge on the properties implied by the efficiency function of the skilled workers.     

International factor mobility,environmental pollution and skilled–unskilled wage inequality in developing countries

This paper establishes a static three-sector general equilibrium model by accommodating environmental pollution to investigate the impact exerted by skilled immigrants and foreign direct investment on the skilled–unskilled wage inequality. Environment is treated as an input for agricultural production. The production process of the urban low-skill sector generates environmental pollution, which deteriorates the rural environment and thereby influences agricultural production. The present paper highlights the role of environmental pollution in the determination of the skilled–unskilled wage inequality due to skilled immigrants and foreign direct investment.     

Factor mobility and skilled–unskilled wage inequality in the presence of internationally traded product varieties

Most existing studies examine the issue of skilled–unskilled wage inequality by using models that are relevant only in the long-run. In addition, studies that utilise product variety models assume that varieties of producer services are non-traded. Using a product variety model, this paper examines the issue of the skilled–unskilled wage inequality when producer services are internationally traded. The paper shows that, irrespective of the size of income share of capital, inflow of capital (which can also be interpreted as foreign direct investment) has no effect on skilled–unskilled wage inequality in the short-run. However, in the long-run, inflow of capital can decrease the skilled–unskilled wage inequality. An increase in the price of the agricultural good can decrease the skilled–unskilled wage inequality in the short-run.     

Does downward nominal wage rigidity dampen wage increases?

Focusing on the compression of wage cuts, many empirical studies find a high degree of downward nominal wage rigidity (DNWR). However, the resulting macroeconomic effects seem to be surprisingly weak. This contradiction can be explained within an intertemporal framework in which DNWR not only prevents nominal wage cuts but also induces firms to compress wage increases. We analyze whether a compression of wage increases occurs when DNWR is binding by applying Unconditional Quantile Regression and Seemingly Unrelated Regression to a dataset comprising more than 169 million wage changes. We find evidence of a compression of wage increases and only very small effects of DNWR on average real wage growth. The results indicate that DNWR does not provide a strong argument against low inflation targets.     

Do liberalization and globalization increase income inequality?

Using the Standardized World Income Inequality Database, we examine if the KOF Index of Globalization and the Economic Freedom Index of the Fraser institute are related to within-country income inequality using panel data covering around 80 countries 1970–2005. Freedom to trade internationally is robustly related to inequality, also when adding several control variables and controlling for potential endogeneity using GMM. Social globalization and deregulation is also linked to inequality. Reforms towards economic freedom seem to increase inequality mainly in rich countries, and social globalization is more important in less developed countries. Monetary reforms, legal reforms and political globalization do not increase inequality.     

Does Inequality Foster Corruption?

In this paper, we investigate how inequality affects corruption in the presence of an imperfect credit market. We favor an explanation based on a multimarket framework where corruption in one market (or sector) arises because of imperfections exacerbated by inequality in related markets. We demonstrate that even when an individual's ability to pay bribes and benefit from engaging in corruption are not affected by wealth level, greater (wealth) inequality will lead to an increase in corruption.     

The impacts of education investment on skilled–unskilled wage inequality and economic development in developing countries

Four-sector general equilibrium models are established to investigate the impacts of increased governmental investment in education capital on skilled–unskilled wage inequality and economic development. The basic model, which assumes perfect competition in the producer services sector, shows that increased education capital investment from the government will unambiguously reduce skilled–unskilled wage inequality and conditionally promote economic development. Then the robustness of the basic model is substantiated by the extended model that incorporates the monopolistically competitive feature of the producer services sector.     

Corruption and total factor productivity: level or growth effects?

This paper adopts a productivity-based perspective in order to study how corruption conditions the efficiency levels of the economies and their TFP growth rate. It attempts to identify the channels through which corruption can influence productivity growth, whether by conditioning improvements in relative efficiency levels or by shifting the production frontier. The results point out that corruption negatively affects both the levels of efficiency at which the economies perform and the growth rate of TFP, suggesting that the negative impact of corruption on technological progress manifest through its influence on human capital.     

Initial offers and outcomes in wage bargaining: who wins?

The initial works council’s wage claim, and the initial firm’s (counter)offer, as well as the fraction of the disputed wages the works council is able to capture conditional on initial disagreement, are analyzed using Spanish data on wage settlements. After a given initial wage claim, the rules of the system force the firm either to accept it or to make a counteroffer prior to a fixed and short deadline. In this context, signaling models predict that the wage claim should try to screen the firm’s level of profitability, while the (most likely forced) offer is expected to reveal little information. Both hypotheses are tested and neither one is rejected. The analysis of the fraction of the disputed wages the workers get after initial disagreement, as well as the length of the negotiation period, provide further evidence in favor of signaling models, since we find they are related to both observed and private information. Moreover, conditional on covariates, for a number of sectors, we cannot reject that the parties “split the difference” between both initial offers. This solution coincides with Rubinstein’s (Econometrica 50:97–109, 1982) wage, the solution for the complete information game.     

Skilled–unskilled wage inequality,nontraded good and endogenous supply of skilled labour: A theoretical analysis

The paper develops a static four sector competitive general equilibrium model of a small open economy in which skilled labour is endogenously produced by the education sector and is mobile between a traded good sector and a nontraded good sector. Capital is also perfectly mobile among the education sector, skilled labour using traded good sector and the nontraded good sector. However, land and unskilled labour are specific to another traded good sector. We analyse the effects of change in different factor endowments and reduction in tariff rate on skilled–unskilled wage inequality. We find that the effect of a change in different parameters on wage inequality depends on the factor intensity ranking between two skilled labour using sectors and on the relative strength of the marginal effects on demand for and supply of nontraded final good. We also analyse the effects of changes in different parameters on the supply of skilled labour.     

Why has wage inequality increased more in the USA than in Europe? An empirical investigation of the demand and supply of skill

During the past two decades the wage gap between high and low skill labour has increased more in the USA than in many European countries. In this paper, the correspondence between occupation and education is used to construct aggregates of skill supply, skill demand and unemployment by skill group that are comparable across countries. Using individual data for years 1983–1994, it is found that the relative demand for skilled labour has increased to a similar extent in the USA and in Europe and that wage inequality remained low in Europe partly because the European relative supply of skill increased much faster than in the USA, and partly because European relative wages were rigid, which caused an increase in unemployment among the low-skilled.     

Does Tax Competition Reduce Corruption?

A vast literature asserts that competition among jurisdictions can mitigate corruption. However, empirical studies do not fully support such a conventional view. This paper points out a drawback of the conventional view, that is, it ignores the role played by the owners of immobile factors. Within a standard tax competition model, we amend the conventional view by incorporating the lobbying of the immobile factor owners, and show that fiscal decentralization can aggravate corruption. We also demonstrate that social welfare can be higher under decentralization than under centralization in some cases, whereas the immobile factor owners' lobbying will prevent such a superiority of decentralization from being the outcome. Moreover, we provide an example to show that a better policy outcome and a higher level of corruption can co‐exist, which contrasts with the general belief.     

What Do Corruption Indices Measure?

Evidence from the International Crime Victimization Survey and the World Business Environment Survey suggests that actual corruption experience is a weak predictor of reported corruption perception, and that some of the factors commonly found to “reduce” corruption, such as economic development, democratic institutions or Protestant traditions, systematically bias corruption perception indices downward from corruption experience. In addition, perception indices are influenced by absolute (as opposed to relative) levels of corruption, which tends to penalize large countries, and they exhibit diminishing sensitivity to both absolute and relative corruption, indicating that they may better capture differences among countries with low levels of corruption than among highly corrupt ones. Individual characteristics such as education, age, or employment status, and firm‐level characteristics such as the number of competitors are also found to influence corruption perceptions holding experience constant.