Wage formation during economic transformation: macroeconomic facts and firm survey evidence from Slovenia

This article provides macroeconomic stylised facts on wage comparisons and microeconomic evidence on how institutional changes, competitive pressures in firms' output markets, human capital and efficiency wage payment affect wage formation during the early stages of transformation. Wages in Slovenia are higher than in other transition Central and Eastern European countries and higher than labour productivity. We use a firm survey panel dataset of Slovenian enterprises to investigate labour cost adjustment and its policy relevance. The results reveal that transformation was not a uniform process as it has induced different labour cost adjustments and wage responses to transformation shocks over time. The hypothesis that labour productivity and competitive pressures in firms' output markets were important for wage formation was not supported. We confirm that rent seeking increased wages in insider, management and employee-owned enterprises in anticipation of privatisation. The effect of human capital was modest and efficiency wage payment was found not to be significant. The hypothesis of unionisation in Slovenian enterprises was not supported.     

Do Immigrants Affect Firm‐Specific Wages?*

We propose and test a novel effect of immigration on wages. Existing studies have focused on the wage effects that result from changes in the aggregate labour supply in a competitive labour market. We argue that if labour markets are not fully competitive, immigrants might also affect wage formation at the most disaggregate level – the workplace. Using linked employer?employee data, we find that an increased use of low‐skilled immigrant workers has a significantly negative effect on the wages of native workers at the workplace – also when controlling for potential endogeneity of the immigrant share using both fixed effects and instrumental variables.     

Inferior factor in Cournot oligopoly

The condition for factor inferiority has been well known for a competitive firm facing perfect competition in both product and factor markets. Whether the factor inferiority is observable or not has been unknown for oligopoly facing perfect competition in factor market. We derive a general condition for the factor inferiority in Cournot oligopoly without product differentiation. We derive it on the basis of a novel technique for proving the existence of a unique Cournot equilibrium industry output.     

资本结构与产品市场竞争强度

资本结构与产品市场竞争之间的关系 ,涉及公司金融学和产业经济学两个过去不相关的学术领域。本文对此提出了一个理论假设并建立了相关的经济模型 ,目的是检验企业的资本结构决策与其在产品市场上的竞争战略之间的关系。理论分析表明 ,企业的资本结构选择作为企业向市场发出的一项承诺 ,它向行业内的其他企业表示企业的竞争行为将更加强硬或更加温和 ,即它具有显著的信号发送功能 ,同时能够产生战略效应。企业的资本结构与其所在的产品市场上的竞争强度之间具有显著的正相关关系。我们以深、沪两地的上市公司为例进行的实证研究有效地支持了我们上述的假设。这对企业经营战略的制订与实施具有重要的启示。     

Sequential Markets: An Experimental Investigation of Clower's Dual-Decision Hypothesis

Countless experimental studies have shown that markets converge quickly and efficiently to the competitive outcome under many trading institutions, particularly the double auction mechanism. This creates difficulties for Keynesian stories of unemployment creation—which suggest a noncompetitive outcome in an essentially competitive world. Such stories were popular in the late 1960s and 1970s. One of these stories—the dual decision hypothesis of Clower—was seen then as the beginning of a story of unemployment. This article reports the results of an experiment designed to test this hypothesis. Specifically, we set up an experiment in which there are two sequential double-auction markets, in the first of which one good (labour) is traded, after which the second market (goods) is opened and the second good traded. We compare the outcome of our experiment with that of the competitive theory. One general finding is that not enough trade takes place in the two markets. In other words, the usual finding that competitive equilibrium is achieved in double-auction markets is not replicated in this sequential setting. This revised version was published online in August 2006 with corrections to the Cover Date.     

Foreign market conditions and export performance: does ‘crowdedness’ reduce exports?

Abstract This paper analyzes the link between firm exports and the competitive environment in foreign markets. We derive a theory‐based econometric specification linking market‐specific exports to foreign demand and the degree of a market’s ‘crowdedness,’ which depends on the number and efficiency of firms competing there and the barriers impeding their access. Estimates on a large sample of Italian firms indicate that increased crowdedness has reduced Italian exports, but only by 0.2%–0.3% per year. This is substantially less than the contribution of other factors such as higher unit labour costs or weak demand growth in the EU15.     

What are the determinants of hiring? The importance of product market demand and search frictions

In this article, we study the importance of product market demand and search frictions for hiring. We use a search-matching model with imperfect competition in the product market to derive an equation for total hiring in a local labour market, and estimate it on Swedish panel data. If product markets are imperfectly competitive, product demand shocks should have a direct effect on employment for given levels of prices and wages. Our main finding is that product demand has such a direct effect on hiring. This highlights the importance of taking imperfect competition in the product market into account in studies of employment dynamics and hiring. We also find that, for given levels of prices, wages, and product demand, the number of unemployed workers in a local labour market has a positive effect on hiring, suggesting that search frictions matter. Quantitatively, product demand shocks seem to be more important for understanding the variation in hiring than shocks to the number of unemployed workers.     

CHINA'S RURAL INDUSTRY AND MONOPSONY: AN EXPLORATION

Abstract. Despite spectacular output growth and significant employment creation, recent findings suggest that China's TVEs are "under-employing"'labour relative to the competitive benchmark. The paper reconfirms these findings on a new data set, discusses the possibility that it is caused by enterprises confronting upward-sloping labour supply curves, and performs a preliminary test for this by regressing the estimated marginal product-wage gaps for our enterprise sample on variables proxying for labour scarcity, labour market infrastructure, and pressure to maximize profits. The results are broadly supportive of the hypothesis.     

Financial markets,the structure of long-term investments and labour income risks

The paper develops a model to analyse the feedback between financial markets, long-term capital investments and the risk of labour incomes. We study a situation where firms are owned by entrepreneurs, who are able to share and diversify their income risk by trading on financial markets. Workers, in contrast, cannot short-sell the flows from future labour endowments and thus do not have the same opportunities. We derive two central results. Firstly, even if financial markets offer perfect risk-sharing opportunities for entrepreneurs, the participation restriction for labour incomes leads to a constrained inefficient market allocation. The constrained inefficiency arises because the effect of long-term investments on the risk of wages is not internalized by state prices. Secondly, we show that in general it is not true that workers indirectly benefit when we go from a situation with no financial markets to a situation with perfect financial markets for entrepreneurs but restricted participation for workers. The results suggest that a policy solution might require either to close some financial markets or to create new ones. We argue why there is a strong case for the creation of new markets rather than for closing existing ones.     

Labour market implications of EU product market integration

European labour markets are in a state of flux due to the changing market situation induced by international integration. This process affects wage formation through more fierce product market competition and increased mobility of jobs. This development is by some observers taken to enforce labour market flexibility, while for others it signals an erosion of social standards and in turn possibly the welfare society. Since labour is not very mobile in Europe, the effects of international integration on labour markets are mostly indirect via product market integration. We review the channels through which product market integration affects labour markets and perform an empirical analysis of the convergence and interdependencies in wage formation among EU countries. We find that integration is changing labour market structures and inducing wage convergences as well as stronger wage interdependencies, but it is a gradual process. Moreover, the present study does not support the view that international integration will lead to a 'race to the bottom' and rapidly erode domestic labour markets standards, nor that it will relieve politicians of the need to consider labour market reforms to improve labour market performance.     

Pitfalls in the modeling of labor market flows: a reappraisal

ABSTRACT

We discuss the relevance of the internationally adopted methodology for modelling labour market flows and comparing labour market flexibility. This is based on a two-state labour market model that neglects inactivity and uses aggregate stock data to derive transition rates. Traditionally, the results suggest that continental European labour markets are inflexible and unable to adjust quickly to aggregate demand or supply shocks compared with their Anglo-Saxon counterparts. This evidence has driven us to gain a better understanding of the relevance of such a modelling approach and critically discuss its main methodological hypothesis. We relax its assumptions by including inactivity and by using flow data for the period 2010–2017. We compare the results thus obtained with transition rates derived using a three-state labour market model for France, Italy, Spain and the United Kingdom. These countries represent the institutional settings of continental Europe on the one hand and Anglo-Saxon nations on the other. The implied transition rates are much higher, even in continental Europe, when inactivity is considered, thus suggesting that conclusions derived using an incomplete representation of the labour market are misleading. Inactivity therefore plays a crucial role and its inclusion provides a more exhaustive picture of labour mobility.     

A concentration index for differentiated products: the case of religious competition

In the past, scholars have used a Herfindahl–Hirschman Index using denominational market shares to measure the competitiveness of religious markets. However, this approach ignores both the imperfect substitutability between denominations and the degree of competition within denominations. These two shortcomings make the current index a suspect measure of religious competition; it often falsely identifies which market micro-economists would generally consider the more competitive one. We develop a new religious competition index that incorporates intra-denominational competition and creates a ‘substitutability parameter’ to better specify the appropriate degree of inter-denominational competition. While the model developed in this article applies specifically to religious markets, our index of competition could be expanded to other economic markets where such a substitutability parameter is meaningful.     

A new approach to measuring competition in the loan markets of the euro area

This article is the first that applies a new measure of competition, the Boone indicator, to the banking industry. This approach is able to measure competition of bank market segments, such as the loan market, whereas many well-known measures of competition can consider the entire banking market only. Like most other model-based measures, this approach ignores differences in bank product quality and design, as well as the attractiveness of innovations. We measure competition on the lending markets in the five major EU countries as well as, for comparison, the UK, the US and Japan. Our findings indicate that over the period 1994–2004 the US had the most competitive loan market, whereas overall loan markets in Germany and Spain were among the best competitive in the EU. The Netherlands occupied a more intermediate position, whereas in Italy competition declined significantly over time. The French, Japanese and UK loan markets were generally less competitive.     

THE PECULIAR INTERNATIONAL ECONOMICS OF PROFESSIONAL FOOTBALL IN EUROPE

Most European industries have a history of gradually opening international markets, with growing international capital mobility and increasing free trade of goods and services. However, although labour markets have been officially deregulated as well, there is much less international mobility of labour, mainly due to cultural and social barriers. An apparent exception to the rule been the industry of professional team sports in Europe, where the Bosman verdict in 1995 has freed the European player market while the product market was still nationally protected. In this paper, we try to derive the consequences of this deviant evolution in the European sports industry, concentrating on the competitive balance within and between national leagues and on the player salary levels, using a simplified ‘two country–four team’ model with quadratic revenue functions.     

Evolution of the Interindustry Wage Structure in China Since the 1980s

Industry mean wages in China have exhibited sharply increased dispersion since the early1990s. Researchers have attributed this rising inequality within the industrial wage structure to: (i) increasingly competitive labour markets leading to better matches between worker pay, worker skills and employer demands; or (ii) residual government control in some industrial sectors that has generated high wages through monopoly rent sharing. We argue that the rise in China's industrial wage dispersion is primarily attributable to increasingly competitive labour markets, which have led to greater returns to schooling and to efficient redistribution of workers across major industry groups. We cannot reject the null hypothesis that the level or changes in government monopoly power has had negligible impact on China's rising industrial wage dispersion.     

AGGREGATE EMPLOYMENT DYNAMICS AND (PARTIAL) LABOUR MARKET REFORMS

European labour markets have undergone several important innovations over the last three decades. Most countries have reformed their labour markets since the mid‐1990s, with the liberalization of fixed‐term contracts and temporary work agencies being the common elements to such reforms. This paper investigates the existence of a change in the dynamic behaviour of the aggregate employment for major European Union countries – France, Germany, Italy and Spain. According to our results, partial labour market reforms have made the response of the aggregate employment to output shocks larger and quite comparable to that found for the UK – the most flexible labour market in Europe since the Thatcher reforms.     

On the Time‐Varying Relationship between Unemployment and Output: What shapes it?

This paper revisits, by means of both time series and panel data analyses, the empirical regularity popularized by Okun's (Proc Bus Econ Sect, 98‐103, 1962) seminal paper focusing on a sample of 20 advanced economies between 1978 and 2015. Not only do we provide arguably better estimates of the Okun's Law coefficient (OLC) (using the gap version) by employing a new filtering technique, but more importantly, we also contest the hypothesis that the OLC has been static over time. By estimating country‐specific time‐varying Okun coefficient models, we confirm that the unemployment‐output responsiveness has been changing over time. The dispersion between countries’ OLCs has been determined by some (structural) characteristics. The starting level of unemployment and the phase of the business cycle increase the estimated OLCs, while informality and certain labour and product market policies lower them. Our evidence sustains the fact that aggregate demand policies aiming at increasing output growth can equally contribute to the recovery in labour markets.     

Growth,unemployment and labour market institutions: evidence from a cross-section of EU regions

The responsiveness of unemployment to growth is an issue of ongoing political and academic interest. Economic growth is supposed to be the key to increase labour demand and reduce unemployment. Departing from Okun's law, most research on the unemployment intensity of growth has focused on national disparities and the role of labour market institutions. Empirical evidence at the regional level is scarce. We investigate differences in regional labour market responsiveness and their potential determinants for a cross section of European regions. The data set covers the NUTS 2 regions in the EU15 for the period 1980 to 2002. Following a spatial modelling approach interaction among neighbouring labour markets is taken into account. Our findings point to substantial differences in labour market effects of output growth among European countries and regions. Both national labour market institutions and regional characteristics, such as structural change explain a significant part of these disparities.     

Foreign competition and social efficiency of entry

We consider social efficiency of firm-entry in the presence of foreign competition. If the labour markets are competitive, entry is insufficient for the domestic country if the transportation cost is low and the marginal costs of the domestic firms are sufficiently higher than the marginal cost of the foreign firm. In the presence of a domestic labour union, entry is always socially insufficient for the domestic country. Hence, the anti-competitive entry-regulation policy may not be justified in an industry facing foreign competition, and it may depend on the transportation cost, the marginal cost difference between the firms and the domestic labour market structure.