Trade Union and Global Economic Growth

Abstract

This paper develops a simple framework for examining the role of unions in a global economy. It builds on the model of different institutions by comparing America with a flexible wage and Europe with a rigid wage (the existence of union), where the two areas are integrated via perfect capital mobility. We find the necessary condition that the degree of wage orientation of the union is larger than the firm's bargaining power and determines the positive direction on global economic growth. In addition, the effect of union's bargaining power on global economic growth is ambiguous. If the sum of the elasticity of substitution between capital and labour and the output elasticity of labour is smaller than one, or the firms are characterized by a Leontief production function (Harrod–Domar growth model) or an extremely low substituting elasticity (much empirical literature is supported), the union's bargaining power will lead to an increase in the growth of the global economy. In the general Cobb–Douglas production function (Solow–Swan neoclassical growth model), the union's bargaining power will result in a decline in the growth of the global economy.     

A Tale of Two Peripheries: Real Wages in Denmark and New Zealand 1875–1939.

Abstract

Denmark achieved dramatic real wage growth after 1870, compared to other European economies and to those of the New World. The ingredients of Denmark's success are gauged by comparison with one its major competitors in the British food-products markets, New Zealand. Faster Danish productivity growth explains only part of Denmark's faster real wage growth. Open economy forces, chiefly international capital flows before 1913, and especially Danish trade union militancy around the end of World War I, influenced income distribution and especially favoured wages over property income in Denmark. Denmark's GDP per capita equalled New Zealand levels between the world wars but her real wages surged past those of New Zealand as distributional shifts favoured Denmark's wage earners.     

Cross‐Country Evidence on Labor Market Institutions and Young Adult Employment through the Financial Crisis

I develop and analyze a set of cross‐country facts regarding employment and wage setting institutions over the decade surrounding the 2008 financial crisis. Among long‐industrialized countries, young adult employment declined more than prime age employment over this time period. I show that differences in countries' wage setting institutions strongly predict variations in the magnitude of declines in young adult employment. Both unconditionally and conditional on changes in macroeconomic conditions, young adult employment declined 5 percentage points less in countries where wage setting is driven by collective bargaining arrangements than in countries with statutory wage floors. Evidence on the evolution of legislated minimum wage rates and of an asymmetry in the relationship between growth and young adult employment suggest an important role for a standard “wage rigidity” mechanism.     

Do firms' political connections depress the union wage effect? Evidence from China

Our paper reconciles the debated literature on the role of the Chinese unions by exploring the heterogeneous effects of unionization on wages in firms with and without political connections. We utilize a survey of 1268 firms in 12 cities to verify our hypothesis that wages increase due to unionization, but this union wage effect is significantly depressed by firms' political connections. Through a detailed analysis of the mechanism behind the empirical results, we conclude that unions increase workers' wages by strengthening the bargaining power of workers, while this bargaining power can be weakened by firms' political connections. Our main conclusion is robust to a series of robustness checks. Moreover, the results from quantile regressions inform us that the union wage effect and the role of political connections may vary along with the firms' wage distribution. Our findings suggest that the solution to further increase wages for low-wage workers and reduce wage inequality is to make the labor union an independent organization which can freely bargain with firms in terms of workers' wages and benefits, rather than an agency subordinate to the government whose role can be affected by the government support and undermined largely by firms' political connections.     

Male White-Black Wage Gaps, 1979-1994: A Distributional Analysis

This paper examines whether the “stretching” (increased variance of wages) of the skill distribution during the 1980s explains the growth in within-group white-black wage gaps. The paper also develops a skill-specific decomposition that measures the stretching's contribution to the wage gap's growth at various skill levels of the distribution. The “local” nature of the skill-specific decomposition breaks the correlation between changes in the position of blacks in the white residual distribution and changes in the variance of wages, thus yielding unbiased estimates of the degree to which the stretching explains changes in the wage gap. The paper shows that if the wage distribution's stretching is an important contributor to the overall wage gap's growth, its greatest impact is at the middle and upper portions of the skill distribution. For wage gaps within education and experience categories, the stretching's contribution is greatest at the tails of the skill distributions.     

我国中央企业工资收入分配改革的方向与策略——基于工资集体协商视角

一年来,面对复杂经济环境,中国政府将"拉动内需"作为经济发展的重要途径。为促进消费,政府积极引导企业建立和实践工资集体协商,以合理、有效地增加职工工资收入。文章从工资集体协商视角对央企工资收入分配改革的方向和策略进行研究。指出应该在央企监管部门、央企所属行业工会和人保部门之间建立行业级工资集体协商机制以保障协商谈判的效率与公平。基于合作博弈理论,构造了协商主体的效用函数;通过模拟赋值,对三种联盟结构下的工资协商主体的整体效用进行计算,进而得出央企效益类型以及议定工资增长率的高低决定协商主体策略选择的结论。     

Books and publications received

ABSTRACT

Economic theory predicts that regional wages will converge as transport and communication technologies bring labour markets together. An exploration of this transition from labour market segmentation to unification requires long-term evidence of nominal wages and cost of living by region. This paper presents new evidence of wages for male manufacturing workers and cost-of-living indices across 24 Swedish counties between 1860 and 2009. Our findings indicate that the Swedish regional wage differentials were a great deal larger in the 1860s than in the 2000s. Most of the compression took place between the 1860s and World War I, as well as in the 1930s and during World War II. Differences in expenditures on housing impact on our assessment of convergence in the post-World War II decades: the nominal measure declines, while the real one stays constant. Our concluding discussion engages with the assumption that before World War I, regional wage convergence was associated with labour mobility, spurred by improved communication and transportation technologies as well as by the implementation of modern employment contracts. In the 1930s and 1940s, in contrast, regional wage convergence can be traced to high unionisation and centralised collective bargaining in the labour market, two distinguishing features of the Swedish Model.     

Further evidence on the effect of foreign competition on industry level wages

Conclusions This paper has examined the impact of trade changes on industry level wage outcomes in a bargaining framework. The results suggest that on average increases in trade, whether emanating from imports or exports, serve to decrease wage changes. This evidence is consistent with the view that foreign trade acts to moderate demand for an industry’s output and hence to discipline wage setting and is consistent with what Konings and Vandenbussche (1995) reported for UK manufacturing.     

Golden Rules of Wages

We consider a neoclassical growth model where labor collectively chooses labor share to maximize its steady‐state wage rate. In the basic two‐factor model, labor maximizes the steady‐state wage rate by setting labor share equal to the elasticity of output with respect to labor. This is precisely the competitive outcome. Only when we consider the model with organized and unorganized labor types can organized labor raise its steady‐state wage by choosing a higher than competitive labor share. Organized labor can benefit by choosing a higher labor share only at the expense of unorganized workers; not capital. We also analyze a version of the model that incorporates a tradeoff between collective bargaining opportunities and skill acquisition. All else equal, a higher skill premium leads organized labor to choose a higher labor share. Organized labor benefits again at the expense of skilled workers; not capital.     

Institutions and economic performance: evidence from the labour market

We analyse the institutional determinants of economic performance,taking European labour-market institutions as a case in point.European economic growth after the Second World War was basedon Fordist technologies, a setting to which the continent'sinstitutions of solidaristic wage bargaining were ideally suited.They eased distributive conflicts and delivered wage moderation,which in turn supported high investment. The wage compressionthat was a corollary of their operation was of little consequenceso long as the dominant technologies were such that firms couldrely on a relatively homogeneous labour force. But as Fordismgave way to diversified quality production, which relied moreon highly skilled workers, the centralization of bargainingand the compression of wages became impediments rather thanaids to growth. Assuming that growth will rely even more inthe future on rapidly changing, science-based, skilled-labour-intensivetechnologies, countries with centralized labour-market institutionswill have to move still further in the direction of decentralization.Whether Europe in particular can accommodate these demands willhelp to determine whether it is able to re-establish a fullemployment economy in the twenty-first century.     

Labour's share in twentieth-century Sweden: a reinterpretation

The distribution of national income between capital and labour is a classical theme in political economy. This paper takes a long-run perspective to the issue and asks two questions: How did the distribution of income between capital and labour develop in Sweden from 1900 to 2000? And how can this development best be explained? It is shown that labour's share in Sweden in the 100 years from 1900 to 2000 saw three important shifts, and the three shifts are analyzed. Around 1920, there was a surge in labour's share as workers mobilised in trade unions and universal suffrage and the eight-hour working day in manufacturing strengthened the bargaining power of workers. From 1950 until the late 1970s, there was another period of an increasing labour share, when the welfare state expanded and trade unions were strong. Contra the well-known postwar wage moderation analysis, there was no wage moderation in Sweden during the 1950s and 1960s, but rather the opposite: wages increased faster than productivity which caused a redistribution from capital to labour and reduced income inequality. The third shift occurred around 1980 when labour's share started a continuous decrease, beginning with several devaluations intended to increase profitability and competitiveness of Swedish business.     

Wage differentials between skilled and unskilled workers

Wage Differentials Between Skilied and Unskilled Workers. — This paper analyzes the change in the ratio of wages paid to skilled and unskilled workers and the effect of these changes on employment by means of a simultaneous-equation pooled time-series cross-section analysis. Hypotheses are derived on the basis of specific theories. The data cover 23 industries over the period 1965–90. The explanatory variables are the cyclical deviations from long-run growth as well as several collective bargaining variables. The wage differential has a strong effect on employment of the two groups under investigation. However, demand has no significant impact on the wage relation.     

Lewis Growth Model and China's Industrialization*

This paper examines China's industrialization in the light of the Lewis growth model. It begins with a perusal of Lewis's own writings and those of Fei and Ranis to clarify certain assumptions and predictions of the Lewis model. The paper then reviews previous applications of the Lewis model in studying industrialization of other countries, and notes the methodological problems that arise in this regard. In applying the Lewis model to study China's industrialization, the paper focuses on the dynamic relationship between wage and marginal product of labor in the traditional sector. For this purpose, the paper estimates a production function for China's agricultural sector using province level data and compares the estimated marginal product of labor with the corresponding wage of the sector. The results show that the marginal product has been increasing (from below) at a faster pace than the wage, as is predicted by the Lewis model. The results indicate that China as a whole is steadily moving toward the Lewis Turning Point.     

Rising wages,yuan's appreciation and China's processing exports

This study investigates the impact of rising wage and the appreciation of the yuan on the structure of China's exports. China's exports are classified here as ordinary exports (OE), and two distinctive groups of processing exports, pure assembly exports (PAE) and mixed assembly exports (MAE). The data analyzed here are derived from panel data covering China's bilateral PAE and MAE with 120 trading partners from 1993 to 2013. The estimates of fixed effect models show that wage increase and the appreciation of the yuan reduced the proportion of assembly exports in China's bilateral exports. Specifically, for a 10% increase in Chinese manufacturing wages, the share of PAE in China's bilateral exports is expected to fall 4.59% and that of MAE to decrease 0.9%; and a 10% nominal appreciation of the yuan against the US dollar is expected to lower the shares of PAE and MAE 8.56% and 7.26% respectively. The empirical results imply that rising wage and cumulative appreciation of the yuan have eroded China's comparative advantage in the assembly of products for international markets, resulting in substantial contraction of assembly exports. The analysis provides a supply-side explanation for the fall of China's export growth.     

INSTITUTIONAL WAGE EFFECTS: REVISITING UNION AND BARGAINING COUNCIL WAGE PREMIA IN SOUTH AFRICA

The literature on the union wage gap in South Africa is extensive, spanning a range of data sets and methodologies. There is, however, little consensus on the appropriate method to correct for the endogeneity of union membership or the size of the union wage gap. Furthermore, there are very few studies on the bargaining council wage premium in South Africa because of lack of data on the coverage of employees under these agreements. Our study, using 2005 Labour Force Survey data, firstly reconsiders the union wage gap controlling for both firm‐level and job characteristics. When correcting for the endogeneity of union status through a two‐stage selection model and including firm size, type of employment, and non‐wage benefits, we find a much lower union wage premium for African workers in the formal sector than premiums reported in some previous studies. Secondly, our study estimates bargaining council wage premiums for the private and public sectors. We find that extension procedures are present in both private and public bargaining council systems but that unions negotiate for additional gains for their members at the plant level. Furthermore, there is some evidence that unions negotiate for awards for their members in the private sector irrespective of bargaining council coverage.     

Missed the starting gun! Wage compression and the rise of the Swedish model in the labour market

A central aspect of the Swedish model was the labour market, distinguished by an egalitarian wage structure and by the particular configuration of two institutions: a centralised wage bargaining that followed upon the Saltsjöbad Agreement in 1938 and the solidaristic wage policy implemented in 1956. The literature argues that these institutions produced an outstanding compression of the wage structure from the late 1960s onwards. In contrast, we argue that this narrow post–World War II focus overlooks the historical dimension of the wage structure. The evidence presented here shows that a compression of the wage structure occurred in the late 1930s and 1940s. Previous research attributes this early episode of compression to market factors. In public investigations and periodicals of the 1940s, however, contemporary observers reckoned that special agreements between SAF and LO during World War II caused wage convergence. These agreements anticipated the solidaristic wage policy of the 1950s. We subject the market-factor view to a statistical test and show its explanatory insufficiency. We thereby corroborate the contemporaries’ view and conclude that the coexistence of the centralised agreements, the solidaristic wage policy, and wage convergence configured the rise of the Swedish model during World War II.     

Declining Labor Share： Is China＇s Case Different？

This paper explores why labor share in China has declined since the middle of the 1990s. Existing literature usually ascribes the labor share decline in developed countries to biased technological progress. However, our investigation shows that China ＂s case is different. Using a simultaneous equation model estimated with three-stage least squares, we find that FD1, levels of economic development and privatization have negative effects on the labor share. The negative influence of FDl on labor share results from regional competition for FD1, which weakens labor forces＂ bargaining power. A U-shaped relationship exists between labor share and the level of economic development, and China is now on the declining part of the curve. The negative effects of privatization on the labor share stem from the elimination of the so-called ＂wage costs eroding profit ＂ situation and the positive supply shock on the labor market.     

Småländsk Världsindustri – En Studie om Entreprenörer och Kluster 1950–2002

Abstract

During the course of more than 40 years of rapid economic change in Sweden beginning in the 1870's, the money income of hired agricultural labour in terms of that of other hired labour does not appear to have changed significantly in the long run. This is shown by the fact that annual earnings of adult male agricultural employees were, in two periods, 1867–73 and 1908–13, approximately 56 % of those of a representative group of skilled and unskilled wage workers in secondary and tertiary occupations (hereafter called 'industry').¹     

Market wage or discrimination? The remuneration of male and female wool spinners in the seventeenth‐century Dutch Republic1

In the historical debate, the gender wage gap is usually attributed either to productivity differences or to gender discrimination. By analysing a newly constructed series of spinning wages in the seventeenth‐century Dutch Republic, the wages of male and female textile workers for the same work could be investigated. At first sight, the evidence on equal piece rates for spinning men and women seems to rule out wage discrimination. Nevertheless, more deeply rooted gender discrimination resulting from the segmented seventeenth‐century labour market restricted women's access to many professions. Exactly this segmentation determined differences in wage earning capacities between men and women.     

The effect of globalization on union bargaining and price-cost margins of firms

In recent years, Europe has witnessed an accelerated process of economic integration. This paper analyzes how increased economic integration has affected labor and product markets. We use a panel of Belgian manufacturing firms to estimate price-cost margins and union bargaining power and show how various measures of globalization affect them. Import competition puts pressure on both markups and union bargaining power, especially when there is increased competition from low wage countries. This suggests that increased globalization is associated with a moderation of wage claims in unionized countries, which should be associated with positive effects on employment.