Industry Dynamics and Competition from Low‐Wage Countries: Evidence on Italy

This article analyses the effect of competition from low‐wage countries on domestic activity, using data on 230 Italian manufacturing sectors between 1995 and 2007. It finds that low‐wage import penetration is negatively related to employment and other measures of activity. The effect is significantly smaller in more skill, capital and R&D‐intensive sectors and in more vertically differentiated sectors. There is also evidence of significant effects of low‐wage competition through inter‐industry linkages: employment is negatively related to low‐wage import penetration in downstream sectors but positively related to low‐wage import penetration in upstream sectors.     

Trade,technology and skills: Evidence from Turkish microdata

In this paper we report evidence on the relationship between trade openness, technology adoption and the relative demand for skilled labour in the Turkish manufacturing sector, using firm-level data over the period 1980–2001. In a dynamic panel data setting, using a unique database comprising data from 17,462 firms, we estimate an augmented cost share equation whereby the wage bill share of skilled workers in a given firm is related to international exposure and technology adoption.It emerges that R&D expenditures are positive and significantly related to skill upgrading. This result supports the skill-biased technological change argument in the case of a middle-income country such as Turkey.Moreover, the firm-level analysis reveals a positive impact of technological transfer from abroad, foreign ownership and exporting status on the demand for skills, highlighting the role of increasing international openness in fostering skill upgrading within firms.Our microdata also allow us to investigate the direct impact of import flows in shaping the relative demand for skills. The results show that those firms belonging to the sectors experiencing rapid increase in the share of inputs imported from industrialised countries also experience a higher increase in the labour cost share of skilled workers. This finding provides further support for the hypothesis that imports from industrialised countries imply a transfer of new technologies, in turn leading to a higher demand for skilled labour (the so-called skill-enhancing trade hypothesis).     

Tax evasion and work in the underground sector

A bivariate random effect panel data model is estimated for male labour supply in the taxable and the non-taxable sectors in Denmark. The wage rates and non-labour income have significant effects on labour supply in both sectors. The average own wage elasticity with respect to underground labour supply is found to be small, 0.02, while the cross price elasticity from regular wages is larger, − 0.52. Simulations of potential tax reforms show that a reduction of the marginal taxes has minor effects on male labour supply to the untaxed sector, while the effect on male labour supply to the taxed sector is larger.     

OFFSHORING, MULTINATIONALS AND LABOUR MARKET: A REVIEW OF THE EMPIRICAL LITERATURE

Abstract.  This paper reviews the empirical literature on the effects of offshoring and foreign activities of multinational enterprises on developed countries' labour markets. Results suggest that material offshoring worsens wage inequality between skilled and unskilled workers; it also seems to make employment more volatile, by raising the elasticity of labour demand and the risk of job losses. Service offshoring exerts at most small negative effects on total employment, and changes the composition of the workforce in favour of high-skilled white-collar employees. Multinationals tend to substitute domestic and foreign labour in response to changes in relative wages across countries; substitutability is weak, however, and mainly driven by horizontal, market-seeking foreign direct investments.     

Some deadweight losses from the minimum wage: the cases of full and partial compliance

This paper highlights the social costs from non-price rationing of the labour force due to the minimum wage. By short-circuiting the ability of low reservation-wage workers to underbid high-reservation wage workers, the minimum wage interferes with the market's basic function of grouping the lowest cost workers with the highest productivity firms. The present paper models the deadweight loss that society bears when high reservation-cost workers displace low reservation-cost workers. When firms can evade part or all of the minimum wage, an extra deadweight loss arises. Firms with high evasive ability but low productivity may displace firms with low evasive ability but high productivity.     

Working hours in Chinese enterprises: evidence from matched employer–employee data

The purpose of this article is to explore the factors that are correlated with hours worked in China. A distinguishing feature of the study is that we used representative‐matched employer and employee data. Hence, in addition to the usual worker characteristics examined in conventional economic models of labour supply, we also took into account the influence of firm characteristics and policies on the number of hours worked. The results suggested that in addition to the hourly wage rate, labour supply characteristics and human capital characteristics of the individual, firm‐level differences are important in explaining variation in weekly hours worked in Chinese firms. In particular, our results suggested that there is a norm of longer working hours in firms that employ a high proportion of female and migrant workers, that hours worked are less in firms which pay overtime and that hours worked are less in firms in which labour disputes have disrupted production. The policy implications of Chinese firms reducing hours worked were discussed.     

Understanding Labour Turnover in a Labour Intensive Industry: Evidence from the British Clothing Industry*

ABSTRACT The clothing industry is both a quintessential global industry and one that is inescapably labour intensive. Despite more and more production shifting to low wage economies in the past decades, there remains a significant amount of clothing manufacturing in high wage economies. This study examines the drivers of change that are forcing restructuring in one such country and the outcomes of such changes for the organization of production. Because the changes have involved treating workers as a resource to be developed rather than a cost, preventing labour turnover has become a crucial component of this strategic repositioning. In presenting the results of a national survey of UK clothing manufacturers we find that high labour turnover rates persist. We discuss the historical background to this phenomenon and current trends, and then explore the principal variables that might explain these trends. We conclude with a discussion of the outcomes facing firms in this industry and comment on why managers resist comprehensive changes in organizational routines and the effort bargain.     

Holdup in oligopsonistic labour markets - a new role for the minimum wage

We consider a labour market model of oligopsonistic wage competition and show that there is a holdup problem although workers do not have any bargaining power. When a firm invests more, it pays a higher wage in order to attract workers from competitors. Because workers participate in the returns on investment while only firms bear the costs, investment is inefficiently low. A binding minimum wage can achieve the first-best level of investment, both in the short run for a given number of firms and in the long run when the number of firms is endogenous.     

Monopsonistic competition for the “best” workers

In this paper we analyse an economy where firms use labour as the only production factor, with constant return to scale. We suppose that jobs differ in their non-wage characteristics so each firm has monopsonistic power. In particular, we suppose that workers are heterogeneous with respect to their productivity. Then, each firm has incentives to offer higher wages in order to recruit the most productive workers. Competition among firms leads to a symmetric equilibrium wage, which is higher than the reservation wage, and to involuntary unemployment for the less productive workers, who are willing to work at the current wage but are not hired because their productivity is lower than the wage level. If firms have no institutional constraint on paying lower wages for the same job, an endogenous labour market segmentation emerges.     

Skill shortages and labor market outcomes in Central Europe

The new Central European members of the EU have been characterized by low employment rates, especially among unskilled workers, despite the GDP recoveries and large private sector shares in output and employment. Evidence points at skill shortages in Central Europe as a key impediment to faster labor reallocation and convergence to the EU-15 employment structures. In this paper, we develop a simple model of labor reallocation with transaction costs and show how skill shortages can inhibit firm creation and increase income inequality. We use the model to examine the impact of training subsidies and their financing on skill acquisition and start-ups of new private firms, and show that the positive effect of subsidies would be mostly offset by high wage taxes. Shifting financing from wage to consumption taxes would improve incentives for workers’ training and firm start-ups, while relying more on income taxes could reduce the income gap between workers and entrepreneurs.     

Do inter-city differences in intra-city wage differentials have any interesting implications?

Recent research has related characteristics of cities to differences in the distribution of wages across workers with different skill levels. We demonstrate that these differences in wage differentials arise naturally as a compensating variation in Rosen’s theoretical model of inter-city wages. For example, if the income elasticity of demand for housing services is less than unity, cities with higher house prices will have smaller money wage differentials between low and high skill workers. This result has no implications for differences in either absolute or relative real productivity or welfare of unskilled workers. Similarly, changes in the amenity of an urban area may result in changes in relative wages of skilled and unskilled workers with no implications for real productivity or welfare differentials.Empirical tests in which housing cost differentials are added as a determinant of inter-city differences in an intra-urban wage differential model provide empirical confirmation of the theoretical expectations. It appears that intra-urban money wage differentials, differences in the quality of life, and variation in the cost of living in each city are jointly determined variables just as Rosen’s model of inter-city wage differentials predicts.     

Strategic investment and international outsourcing in unionised oligopoly

We develop an oligopoly model in which firms facing unionised domestic labour markets choose between producing an intermediate good in-house and outsourcing it to a non-unionised foreign supplier that makes a relationship-specific investment in developing the intermediate. The paper sheds light on the issue of whether international outsourcing offers a means to ‘escape’ the power of domestic unions and on the existence of intra-industry wage dispersion. We show that outsourcing typically increases marginal costs even when it lowers union wages. Despite this, more powerful unions increase the incentive to outsource.     

The Labour Market Effects of Increases in Social Insurance Premium: Evidence from Japan

Exploiting heterogeneous variations in labour cost increases due to Japan's 2003 social insurance premium reform as a natural experiment, we estimate the impacts of the increased social insurance premiums on employment, working hours and payroll costs. Using the difference‐in‐differences method with establishment fixed effects, we find that firms reduce the number of employees and increase average annual earnings from longer working hours in response to an exogenous increase in labour costs without productivity gains. Firms manage to pay for this increase in the average wage paid to the remaining workers by reducing the number of employees to keep total payroll costs unchanged. In contrast, since social insurance premiums are shared equally between employees and employers, firms pay the remaining half premiums that they are imposed with. Sub‐sample analyses show that firms adhering to a labour hoarding policy did fire many workers taking advantage of the 2003 reform. This may indicate that the reform provided a good excuse to cut employment in firms that had been forced to comply with a labour hoarding policy even in an over‐employment situation, which is more likely in sectors and countries where dismissals are rigorously regulated.     

Spatial changes in labour market inequality

We study spatial changes in labour market inequality for US states and MSAs using Census and American Community Survey data between 1980 and 2010. We report evidence of significant spatial variations in education employment shares and in the college wage premium for US states and MSAs, and show that the pattern of shifts through time has resulted in increased spatial inequality. Because relative supply of college versus high school educated workers has risen faster at the spatial level in places with higher initial supply levels, we also report a strong persistence and increased inequality of spatial relative demand. Bigger relative demand increases are observed in more technologically advanced states that have experienced faster increases in R&D and computer usage, and in states where union decline has been fastest. Finally, we show the increased concentration of more educated workers into particular spatial locations and rising spatial wage inequality are important features of labour market polarization, as they have resulted in faster employment growth in high skill occupations, but also in a higher demand for low wage workers in low skill occupations. Overall, our spatial analysis complements research findings from labour economics on wage inequality trends and from urban economics on agglomeration effects connected to education and technology.     

The modern corporation as a safe haven for taste-based discrimination: An agency model of hiring decisions

This paper proposes a principal-agent model of labour market discrimination. In this model, the firm manager is a taste-based discriminator and has to make unobservable hiring decisions that determine the shareholder's profits, because workers differ in skill. The model shows that performance-based contracts may moderate the manager's propensity to discriminate, but that they are unlikely to fully eliminate discrimination. Moreover, the model predicts that sectors with high skill leverages discriminate less. Finally, the impacts of a wage gap between groups and of a diversity premium are investigated.     

Skill: the solution to low wage work?

During the UK Labour government's 13 years in power, raising skill levels was seen as the principal mechanism to improve the position of workers stuck in low wage jobs. This article draws together research undertaken in low wage sectors to question the assumptions that underlay Labour's approach to low pay.     

Is Child Work Necessary?*

This article investigates the hypothesis that child labour is compelled by poverty. It shows that a testable implication of this hypothesis is that the wage elasticity of child labour supply is negative. Using a large household survey for rural Pakistan, labour supply models for boys and girls in wage work are estimated. Conditioning on non-labour income and a range of demographic variables, the article finds a negative wage elasticity for boys and an elasticity that is insignificantly different from zero for girls. Thus, while boys appear to work on account of poverty compulsions, the evidence for girls is ambiguous.     

Skill gaps in the workplace: measurement,determinants and impacts

Optimal training decisions require employers to have accurate information about their workers’ training needs. However, little is known with regard to the key factors determining the accurate transmission of worker training requirements. Using one of the few linked employer–employee surveys in the world, the 2006 Irish National Employment Survey, this article identifies the key factors determining the correct identification of skill gaps within firms. The impact of skill gaps on average training expenditures and labour costs is also measured. The research finds that both HRM and collective bargaining arrangements are important factors in facilitating the accurate identification of skill gaps within firms. The analysis confirms that skill gaps are a key determinant of training expenditures and tend to raise average labour costs. Finally, the evidence suggests that employee perceptions of skill gaps may be prone to higher levels of subjective bias relative to those based on the employers’ views.     

Volatile multinationals? Evidence from the labor demand of German firms

Does more FDI make the world a riskier place for workers? We analyze whether an increase in multinational firms' activities is associated with an increase in firm-level employment volatility. We use a firm-level dataset for Germany which allows us to distinguish between purely domestic firms, exporters, domestic multinationals and foreign multinationals. Employment in multinationals could be more volatile than employment in domestic firms if multinationals were facing more volatile demand or if they react more to aggregate developments. We therefore decompose the labor demand of firms into their reaction and their exposure to aggregate developments. We find no above-average wage and output elasticities for multinational firms.     

Discrimination,technology and unemployment

I study the interaction between discrimination and investment using a directed search model where firms decide the capital intensity of their production technologies before being matched. Discrimination makes some workers cheap to hire. As a consequence, some firms might save on capital costs adopting labour intensive technologies. This framework allows one to reconcile search models with three well-known facts regarding the labour market outcomes of minority workers: low wages, high unemployment and occupational segregation. Furthermore, the model questions the role of equal pay legislation in reducing inequality since removing this restriction, i.e., allowing firms to post type-contingent wages, eliminates the negative effects of discrimination on investment and wages.