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.     

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.     

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.     

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.     

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.     

Institutions, wages, and inequality: The case of Europe and its periphery (1500–1899)

This paper explores the long-run relationship between institutions and wage outcomes in Europe and its periphery. I find that cities that exercised stronger institutional protection of private property experienced: (i) higher levels of both skilled and unskilled real wages, as well as (ii) lower levels of inequality as measured by the skilled–unskilled wage ratio. While the first result corroborates existing work on the positive growth effects of better institutions, the second finding is more novel to the literature. Some explanations are proposed for how stronger institutions can cause an increase in the relative supply of skilled workers, thus lowering wage inequality.     

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。     

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.     

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.     

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.     

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.     

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.     

Economic geography and inequality in China: Did improved market access widen spatial wage differences?

New economic geography (NEG) models predict that costly transport and the spatial distribution of demand affect the profits firms can earn in different locations, leading to higher wages for workers employed in cities with better geographic access to markets. In light of the ongoing economic integration and market reforms that occurred in China after 1995, we use three waves of Chinese Household Income Project (CHIP) data to measure the extent to which the influence of market access on wages changed and affected wage dispersion across Chinese cities over the next 12 years. Employing the gravity-based method of Redding and Venables (2004) to calculate the market access available to firms located in each city, we test whether the elasticity of the wage with respect to local market access increased over time. We find that in all three years market access of the worker's location has a positive and significant influence on the wage. Consistent with extensive labor market reforms of the late 1990s, the estimated wage elasticity doubles between 1995 and 2002 and is stable thereafter. Our estimates indicate that wages of all workers become more responsive to market forces in a manner consistent with NEG predictions, both skilled and unskilled and those working for state as well as private enterprises. We also provide evidence that these results are not driven by omission of other forms of agglomeration or by selection bias. Estimated spatial differences in nominal wages are large: a worker moving from an inland location to the coast in 2007 would have doubled his or her nominal wage. Counterfactual analysis indicates that spatial differences in market access contribute to wage inequality, but less so over time.     

FDI and the labour market: a review of the evidence and policy implications

This paper presents a series of results concerning the labour-marketimpact of inward foreign direct investment (FDI) in the UK.The paper demonstrates that one of the crucial impacts of FDIis to increase wage inequality and the use of relatively moreskilled labour in the domestic firms. This result is found tobe a combination of two effects. First, the entry by a multinationalenterprise (MNE) increases the demand for skilled workers inan industry or region, thus increasing wage inequality. Second,technology spillovers occur from foreign to domestic firms.As a result of these spillovers, relative demand for skilledworkers increases in the domestic firms, further contributingto aggregate wage inequality and skill upgrading. The paperalso considers how FDI impacts upon skill shares by productivitydifferentials between foreign and domestic firms. Finally, thepolicy implications of this are discussed, from the perspectiveof regional development, and the likely effectiveness of attractingFDI to reduce structural unemployment.     

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.     

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.     

对外开放扩大还是缩小了中国的工资不平等?——来自中国省级面板数据的证据

对外开放与收入差异的关系一直是国际和国内学术界关注的热点问题,之前大多数研究的结论都认为对外开放扩大了中国的收入差异。本文基于1995～2007年的省份面板数据和行业工资数据,使用Pooled OLS、Fixed Effect、Random Effect、IV、GMM等多种计量方法,发现之前研究的结论———对外开放扩大了收入差异或者减少了贫困,可能是由于忽视了省际间的异质性及其变化所导致的。通过使用动态面板数据的工具变量法解决这一问题之后我们发现,对外开放对中国地区内的工资差距并没有直接的影响。     

Deskilling and decline in skill premium during the age of sail: Swedish and Finnish seamen, 1751–1913

The study examines the evolution of skill premium and share at industry level in shipping during the age of sail. We argue that the period from the 1750s to the 1910s represented deskilling for the seamen working in sailing ships. The growth of international trade and shipping during the first era of globalization increased the overall demand for sailors but decreased the relative demand for skilled labor in favor of less skilled ones. This deskilling was associated with a decline in wage inequality, as the premium for high skilled seamen fell relative to mean wages in the shipping industry. The decline in skill premium may have facilitated the growth of trade and shipping, as the relative costs of transport declined. This in turn might have hastened the first era of globalization.     

The new Ricardian specific factor model

This paper explores the implications on trade and wage inequality of introducing financial capital or credit in the standard Ricardian model of production, where a given amount of start-up credit is used to employ sector specific skilled and unskilled workers following the Wage Fund approach of classical economists. Thus, we have the Specific Factor (SF) structure of Jones (1971) in a new Ricardian model (NRM) with credit and two types of labour. With an entirely different mechanism from the conventional Neo-Classical structure, distributional consequences of changes in endowments, commodity prices, and financial capital are established. Comparisons with Jones (1971) show that unlike SF model, credit expansion affects wages and nominal costs without affecting trade patterns, while rise in the relative price of the skill-intensive good causes skilled wage to hike less than proportionately, and may cause return to capital to inflate more than the wages. We extend the basic model to analyse immigration, unemployment and imperfect credit market.     

Globalization and wage inequalities: A synthesis of three theories

Globalization and Wage Inequalities: A Synthesis of Three Theories. — The theoretical insights of Heckscher and Ohlin, Feenstra and Hanson, and Tang and Wood provide a plausible explanation of the effects of globalization on wage inequalities in developed and developing countries. In combination, these three theories can explain, among other things, why inequality has fallen in some developing countries but risen in others. Improved travel and communications facilities raise the relative wages of highly skilled Northern workers, but in both the North and the South have mixed effects on wage gaps between medium-skilled and unskilled workers, sometimes reinforcing and sometimes offsetting the effects of falling barriers to trade.