Trade,technology, and the labour market: impacts on wage inequality within countries

This paper focuses on the widening wage inequality between skilled and unskilled workers within countries and discusses whether trade and technology have contributed to this trend. The paper develops an analytical framework for wage inequality that traces the determinants and their relative roles in wage inequality in different stages of the development of trade theory, especially those considering new evidence after 2011. We find that technology plays a key role in the rise of wage inequality in most countries, while trade plays an increasingly crucial and more complex role in recent years. Skill supply institutions, such as education systems supplying skilled labour or unions participating in wage‐setting processes, suppress the rise of wage inequality in some countries. The paper further outlines the mechanisms through which trade affects wage inequality, including offshoring, firm heterogeneity, labour market frictions and global value chains. We find that trade has indirect effects on technology, which further enlarges the wage inequality among skills. The paper also discusses the policy implications of the impacts of trade and technology on wage inequality.     

Export Activity,Firm Size and Wage Structure: Evidence from Taiwanese Manufacturing Firms*

This study adopts a semiparametric smooth coefficient model to evaluate the export–wage premiums, firm size–wage premiums, and the wage gap between skilled and unskilled labor. Particular focus is placed upon widespread evidence indicating that pay levels in ‘large’ and ‘export‐oriented’ firms are higher than in their ‘small’ and ‘domestic‐oriented’ counterparts. Applying the firm‐level data for Taiwanese manufacturing firms, we find a positive export–wage premium for skilled workers and a negative export–wage premium for unskilled workers. The hypothesis of a constant export premium across firm size is rejected. While most of the export–wage premiums for skilled labor can be attributed to the small and medium firms, the large exporting firms have a significant adverse effect on wages for unskilled labor. Moreover, our results suggest that the firm size–wage premiums for skilled workers are larger than those for unskilled workers. The wage gap between the two skill groups is also sensitive to size categories.     

Appropriation,firm dynamics,and wage inequality

This paper examines the income distribution and welfare effects of appropriation activities in an economy. In the short run, with a given number of firms, appropriation can narrow wage inequality between skilled and unskilled labor when the capital resources accrued by appropriators are not large. However, wage inequality widens when the capital accrued is large. In the long run, with free entry and exit of firms, an increase in appropriation can cause firms to enter when the accrued capital is not large. This gives rise to a win–win outcome by raising the wages of skilled and unskilled labor. However, if accrued capital is large, firms exit and a lose–lose situation may occur in which skilled and unskilled wages are reduced.     

Education,globalization and catch-up: Scandinavia in the Swedish mirror

This paper estimates and analyses wage inequality trends in Portugal, from 1944 to 1984, a period that comprises the Estado Novo dictatorship and the first decade after the transition to democracy. Wage inequality is measured by the gap between skilled and unskilled labour, and reveals a downward trend in most of the period in analysis. We provide an explanation for the observed trends by looking at the influence of domestic and international forces on changes in the relative supply and demand of skilled labour. According to our findings, the skill premium declined due to the combined influence of two major forces: an increase in the relative supply of skilled labour due to the mass emigration of unskilled labour, and the decrease in the relative demand for skills, related to trade-induced changes stemming from the country's increasing openness, which followed the country's unskilled labour comparative advantages. Our findings point to the conclusion that the impact of openness on wage inequality is related to the country's relative level of development among its major trading partners.     

Openness, Technological Change and Labour Demand in Pre-Crisis Indonesia

This paper examines the impact of export orientation, import competition, foreign ownership and the rate of capital accumulation on the relative demand for skilled and unskilled labour in pre-crisis Indonesia. Estimates from an interrelated factor demand analysis indicate that openness and foreign ownership, by themselves, acted to raise the relative demand for unskilled workers in the pre-crisis period, while the newness of capital was associated with increased relative demand for skilled workers. Overall, the relative demand for unskilled workers increased yet their relative wage position weakened. These contrasting relative employment and wage changes are consistent with the examined demand shocks and the greater elasticity of supply of Indonesian unskilled relative to skilled labour.     

Global Outsourcing and Wage Inequality in Middle-Income Countries: Evidence from South Korea

A substantial number of studies have suggested that global outsourcing can induce wage inequality. As Feenstra and Hanson [(1996a) Foreign investment, outsourcing, and relative wage, in: R. C. Feestra, G. M. Hanson, and D. A. Irwin (Eds.) Political Economy of Trade Policy: Essays in Honor of Jagdish Bhagwati (Cambridge: The MIT Press), pp. 89–127] argued, global outsourcing is comparable to skill-biased technological change in that global outsourcing is more likely to increase the wage of skilled workers rather than their unskilled counterparts. We examine the effects of outsourcing on wage of skilled and unskilled workers in Korea's manufacturing sector with a focus on the dissimilar effects of outsourcing to developed countries (DCs) and less developed countries (LDCs) on relative wage. The results of system and difference GMM estimation based on manufacturing data from 1992 to 2006 indicate that outsourcing to DCs and LDCs have opposite (and significant) effects on relative wage, that is, outsourcing to DCs (LDCs) decreases the wage of skilled (unskilled) workers.     

生产者服务业FDI与东道国工资差距:理论与实证

本文从理论和实证两个角度,阐述并验证了生产者服务业FDI对东道国熟练与非熟练工人的工资差距的影响。通过一个将生产者服务作为中间投入的两部门理论模型,我们发现,生产者服务业FDI使得服务品种增加,并造成熟练工人从一般制造业部门流向服务(或高技术)部门,导致熟练工人工资上升而非熟练工人工资下降。本文选取上海市的数据,建立了4个回归模型进行实证检验。结果表明,生产者服务业FDI对熟练与非熟练工人的工资差距会产生直接而显著的扩大作用,但是它同时能通过其他解释变量,如人均GDP、人均人力资本、第三产业就业率以及第二产业的全员劳动生产率对工资差距产生间接的收缩作用。最后,本文针对回归结果得出了相应的结论和启示。     

The Lost Race between Schooling and Technology

We study the evolution of wage inequality between skilled and unskilled workers in the Netherlands for the years 1969-2020. Our analysis is based on estimates of the production structure in the Netherlands, projections of the relative supply of skilled workers, and projections regarding shifts in relative demand for skilled workers. Wage inequality will increase under plausible assumptions because relative demand for skilled workers will increase more rapidly than the relative supply of skilled workers. We study the potential of education subsidies to higher education in order to stimulate the supply of skilled workers thereby off-setting the increase in projected wage inequality. Our findings suggest that education subsidies are not very effective in combatting increases in wage inequality.     

Wage increases, wage convergence, and the Lewis turning point in China

We examine the wage trends of ordinary workers and the wage convergence between unskilled and skilled workers in China. First, we find that wages in all non-agricultural sectors, wages of migrant workers, and wages of hired workers in the agricultural sector have increased dramatically since 2003. Second, through comparing wage differentials between migrant and urban resident workers and between heterogeneous education groups within migrant workers, and by investigating the changes in the contribution of the returns to education to wage differentials, we find that the wages of unskilled and skilled workers have converged. Both the increasing wage trends and wage convergence are interpreted as evidence supporting the hypothesis that China has passed what can be called the Lewis turning point in the industrial sector. We conclude that the sustainability of economic growth in China requires an upgrading of labor market institutions to accommodate the merging of the rural and urban labor forces.     

Upstreamness,exports, and wage inequality: Evidence from Chinese manufacturing data

In this paper we investigate within-firm wage inequality across heterogeneous industries that hold different positions in the domestic value chain, and across heterogeneous firms that have different exposure to trade. We find that the wage inequality problem is more severe in upstream industries than in downstream ones, and among firms with greater exposure to trade (i.e., larger export share of sales). Our findings support both classic and new new trade theories on wage inequality. In downstream industries where Chinese firms are typically engaged in processing and assembly work with intensive use of unskilled labor, trade leads to less wage inequality within firms. However, trade also introduces pro-competitive effects which usually benefit exporters and their skilled labor. The results hold after various checks and controls for robustness.     

Trade liberalization and wage inequality: Evidence from Korea

This paper investigates the heterogeneous income distribution effects of trade liberalization using Korean survey data from years of 2000–2015. Following the Stolper-Samuelson theorem most of previous research studying the effects of trade liberalization on wage differences focus on workers’ characteristics (e.g., skilled or unskilled) while heterogeneity within the same worker group has not been yet substantially investigated. To fill this gap, this paper provides empirical evidence of wage inequality across firms within the same group of workers caused by trade liberalization, potentially implied in the new-new trade models with firm heterogeneity. Employing a difference-in-differences (DID) specification, we find that the wages of unskilled workers in Korea have increased since its FTAs with more advanced countries, such as members of EU and the US, came into effect, while the effects on the wages of skilled workers are negative but not statistically significant. We also show that wage effects are heterogeneous across firms within unskilled and skilled worker groups, while the positive effects are statistically significant and largest for unskilled workers in medium-large sized firms. These findings are in line with both traditional and new-new trade models.     

Multinational companies and wage inequality in the host country: The case of Ireland

Multinational Companies and Wage Inequality in the Host Country: The Case of Ireland. — In this paper, the authors analyze the impact of multinational companies on wage inequality in a host country. Based on a model, in which the introduction of new technologies leads to increases in the demand for skilled labour and, therefore, to rising wage inequality, they econometrically study the Irish manufacturing sector between 1979 and 1995. They examine inequality between wages for skilled and unskilled labour within the same manufacturing sector. Their results indicate that there is an inverted-U relationship between wage inequality and multinationals, i.e., with the increasing presence of multinationals, wage inequality first increases, reaches a maximum, and decreases eventually.     

Global value chains,firms, and wage inequality: Evidence from China

How does participating or moving to more upstream in the global value chains (GVCs) affect the premium paid to skilled compared to unskilled labor within firms? In this paper, we develop a model of heterogeneous firms with intermediate trade and two skill inputs, in which we apply the fair wage hypothesis to predict the wage premium changes according to firms' GVCs activities. The model predicts that firms' backward GVC participation, as measured by the share of foreign value-added content in exports (FVAR), has an ambiguous impact on wage inequality of skills, which depends on the relative importance of “FVAR-labor substitution effect” and “FVAR-profit effect.” However, moving to upstream sectors in GVCs, as measured by the export varieties' upstreamness (or average distance from final use), raises a firm's wage premium. Using detailed Chinese firm-level data from 2000 to 2006, we develop a Mincer-type empirical model to study the wage premium changes associated with FVAR and upstreamness. We find robust empirical evidence that the rise of wage inequality in China mainly arises from moving to more upstream sectors rather than changing GVC participation.     

Tariffs,relative prices and wage inequality: Evidence from China

This paper, based on data from China after its membership into the World Trade Organization (WTO), shows the co-existence of a fluctuating skill premium and rises in wages for both skilled and unskilled labor. Our research provides one specific factor, the tariff reduction biased toward unskilled labor-intensive sectors, to explain and quantify the magnitudes of skill premium dynamics using the mandated-wage approach. The empirical evidence indicates that sector-biased tariff reductions have widened wage inequality in China through their effect on product prices. World price competition, on the other hand, has contributed to declining wage inequality via product prices, which is consistent with the endowment-based expectations of China's integration into the more skilled-labor abundant world.     

Capital market distortion,firm entry and wage inequality

Distortions in the capital market are notable in developing economies like China. By building up a dual production structure with oligopolistic competition in urban manufacturing, this paper investigates the distributional and welfare effects of capital market distortions. We find that in the short run, an increase in the capital market distortion in favor of urban firms can lower both the skilled and unskilled wages. However, in the long run, the preferential policy on reducing capital cost to the urban sector attracts new entry of firms, which can worsen the skilled-unskilled wage inequality in the economy. This firm-entry effect of the capital market distortion on wage inequality is empirically confirmed for China.     

外包与工资差距——基于工业行业数据的经验研究

本文首先检验了国际外包对我国熟练劳动力与非熟练劳动力工资差距的影响.计量结果表明,与斯托尔帕-萨缪尔逊定理所揭示的相反,外包贸易降低了我国相对丰裕的非熟练劳动力的相对工资.微电子设备的使用也加大了对熟练劳动力的需求,进一步加大熟练劳动力与非熟练劳动力的工资差距.为了检查是否是因为贸易形态的变化所导致的结果,我们进一步检...     

Hukou system reforms and skilled-unskilled wage inequality in China

In China, rural migrant workers usually cannot get fair treatment due to the hukou system. This paper investigates how hukou system reforms affect the skilled-unskilled wage inequality through the general equilibrium approach. In the basic model, we find that an increase in the strength of hukou system reforms will narrow down the wage inequality if the urban skilled sector is more capital intensive than the urban unskilled sector. In addition, we separately extend the basic model by introducing the endogenous minimum wage and an informal sector, and find that in these two extended cases the main results of the basic model will conditionally or unconditionally hold. When we consider some empirical evidences in China, our models predict that an increase in the strength of hukou system reforms will reduce the wage inequality.     

What is Behind Increasing Wage Inequality in Mexico?

We evaluate the impact of the educational expansion and changes in labor market institutions on wage inequality among Mexican workers using a simulation technique proposed by Knight and Sabot [The American Economic Review 73(5) (1983) 1132–1136]. We conclude that while increases in the relative rate of return of higher education would have induced an increase in wage inequality, changes in the composition of the educational distribution would have led to a stronger decline in wage inequality. Instead, increased wage inequality is largely explained by changes in Mexican labor market institutions; namely, unionization rate and minimum wages.     

Inequality,poverty and prospects for redistribution

This paper demonstrates that poverty and inequality trends can diverge. It then discusses inequality trends and shows that, despite measurement issues, there is consensus that inequality is very high and has been rising over much of the post-transition period. Due to rising inequality within all groups, and particularly the black population, and lower inequality between race groups, within-group inequality has become the dominant form of inequality. That does not, however, detract from the fact that inequality between groups is still very large. High income inequality largely stems from inequality in access to wage income, due more to wage inequality than to unemployment. A Gini coefficient for wage income amongst the employed of above 0.60 effectively sets a floor to overall income inequality. The high wage premium to educated workers derives from a combination of a skills shortage at the top end of the educational spectrum, driving up their wages, and a surfeit of poorly-educated workers competing for scarce unskilled jobs dampening unskilled wages; if the unemployed were to find jobs, it would be in this bottom part of the wage distribution, and consequently this would not much reduce wage inequality. A continuation of the historical pattern whereby only a small segment of the population obtained good schooling would leave the structures underlying the large wage premium unaltered. The time frame for substantial inequality reduction is thus necessarily a long one, while poverty reduction efforts should not wait for this to occur.     

Work and Wages at a Melbourne Factory,the Guest Biscuit Works 1870–1921

The story of wages in nineteenth‐ and early twentieth‐century Australia has largely been told through official published statistics and the experiences of skilled artisans and construction labourers. Utilising wage book data from an early successful manufacturing plant – a biscuit factory – we reveal the earning histories of several neglected groups of Australian workers. We specifically investigate the effects of the 1890s depression, the introduction of a wages board, and shifting demographics on the wages of unskilled factory hands, women, juvenile workers, and commercial clerks. We demonstrate that typical Australian wage series studies have misinterpreted the impact of these phenomena.