Labour market segmentation and union wage gaps

Abstract

There has been a great deal of research regard the effects of unions on union – non-union wage gap. Most of the studies regarding the impact of unions on wages have assumed that apart from the division between union and non-union workers, the labour market is relatively homogeneous. A number of economists, however, have argued that the labour market is segmented, implying that there are distinct labour markets and that some workers employment opportunities are concentrated in “bad jobs” while other workers employment opportunities are concentrated in “good jobs” which are rationed.

This paper will explore whether the relative wage differential between union and non-union workers differs between the independent primary, subordinate primary and secondary labour markets. Labour market segments are defined using “job zones”. “Job zones” are distinct groups defined by the level of specific vocational preparation necessary for a particular occupation, allowing for the comparison of skill levels and training for each occupation. The data on “job zones” comes from the Occupational Information Network database (O?Net). We estimate separate equations for union and non-union workers in each segment using data from the Current Population Survey and calculate union non-union differentials for each labour market segment. The findings of this paper suggest that the greatest differentials are in secondary labour markets followed by differentials in the subordinate primary labour market and that the smallest wage differentials are in the independent primary labour market.     

Old (Chicago) school,new century: the link between Knight and Simons’ Chicago plan to Buchanan’s constitutional money

James Buchanan had long been a champion of the early Chicago school’s emphasis on the essential role that institutions play in framing the market process. In his post-2009 analysis of the financial crisis, Buchanan echoed his old Chicago mentors like Frank Knight and Henry Simons in arguing that the Great Recession, like all previous financial crises, was primarily a failure of the rules governing our monetary-financial system. This “old Chicago” emphasis on the institutional “rules of the game” formed the basis of his essential post-2009 argument that the financial crisis fundamentally represented not a market failure, per say, but a constitutional failure. In this paper, I connect the dots in Buchanan’s post-2009 analysis of the Great Recession and his reaffirmation of the need for “constitutional money” to his old Chicago mentor’s strikingly similar calls for a radical restructuring of the monetary-financial system in the Chicago Plan of the 1930s. Though Buchanan’s twenty-first century resurrection of these ideas has yet to conjure up the academic support of his predecessors, certain elements of his “old school” monetary-financial reforms have experienced a strong revival since the financial crisis, as has Buchanan’s more general call to “constitutionalize money.”     

Informal Employment and the Structure of Wages in India: A Review of Trends

The “alternative”, “atypical” or “informal” workforce has grown in developed and developing countries alike. One of the more recent evolutions of informal employment has been of informal employment within formal enterprises. In the interest of flexibility and cost‐reduction, many formal firms increasingly resort to hiring workers on a temporary or informal basis. Alongside, and perhaps, as a result of the persistence and pervasiveness of informal employment, issues relating to inequality have come to the fore. This paper is motivated by these two intertwining aspects of Indian labor market—informality and wage inequality. Using nationally representative sample data, the paper examines trends in wage inequality among various forms of informal workers, overlaying these findings with broader trends in inequality. Using a regression based inequality decomposition, the paper compares the sources of wage inequality across different employment groups and the reasons for differences in wage inequality.     

Uncertainty and employment dynamics in the euro area and the US

In this paper we investigate the local and foreign effects of uncertainty shocks on unemployment in two large economic regions, the United States (US) and the euro area (EA). We deploy a Bayesian Markov-switching structural vector autoregressive model identified via heteroscedasticity. Two alternative specifications are considered with the shocks of interest being labelled as “US (or EA) demand uncertainty” and “US (or EA) financial market uncertainty”. We reach similar conclusions using both specifications: (i) US shocks have an effect on both the local and foreign labour markets while euro area shocks are much less influential; (ii) the US labour market tends to react and absorb shocks more quickly than the labour market in the euro area does. As economic theory predicts, the reaction to uncertainty shocks points to possible market imperfections that are region specific.     

Recent decline in wage inequality and formalization of the labour market in Argentina

Labour market conditions improved during the 2000s in Latin America, a process that included a reduction in the magnitude of informal employment. A decline of wage inequality was another feature of this period. Both dynamics were particularly intense in Argentina. The purpose of this study is to evaluate the role played by the process of formalization of the labour market that occurred in Argentina during that period on the reduction of income inequality, while additionally taking into account other factors that might have also contributed to such dynamics of income inequality. The method employed is a decomposition proposed by Firpo, Fortin and Lemieux, which allows extending the Oaxaca-Blinder approach to decompose some distributive statistics of income between a ‘composition effect’ and a ‘returns effect’. The study concludes that the process of increasing labour market formalization had an equalizing effect over the period, a finding that had not been emphasized in previous studies.     

Theory-driven facts and the growth in earnings inequality

It is widely accepted that the rise in U.S. wage inequality can be explained by skill-biased technological change: workplace computerization produced demand shifts that worked with a simply supply and demand “vision” of the labor market than with direct statistical evidence, which is remarkably limited. Indeed, the dominance of this elementary textbook vision has led, I argue, to a conflation between statistical facts and “theory-driven” facts—those statements about reality that are selected, interpreted, or simply created to confirm a vision of the way things work. The paper concludes by outlining an alternative explanation of the growth in wage inequality based on a sharply different, Gordonian, vision of the labor market.     

Waves of Populism: A Recent Manifestation of Polanyi’s “Double Movement”?

Abstract:

Since the Global Financial Crisis (GFC) of 2008, there has been a new wave of populism in the United States and in Europe. The hypothesis of this article is that this GFC has created the conditions for the resurgence of populism. According to Polanyi’s work of 1944, The Great Transformation, the market is “utopian” and must be imposed by the state. Further, there is a disciplinary dimension, which separates the individual worker from the community, for the purposes of allowing the “prod of hunger” to be effective. This disciplinary dimension of the market, which is based on Polanyi’s analysis of the nineteenth and early twentieth centuries, can be extended. Several phenomena in the late twentieth and early twenty-first centuries have intensified the tensions inherent in the market: fragmented production by means of finely divided global supply chains, increasing inequality due to the market structure; automation, declining labor share; increasing indebtedness; financialization; and erosion of protective labor market institutions, such as welfare and unionization. Populist movements are part of the backlash or “double movement” against these tensions inherent in the market.

Polanyi’s analysis may contribute to a greater understanding of what may be a global inflection point at present.     

Can the link between functional and personal income distribution enhance the analysis of inequality?

The aim of this paper is to present a framework which links functional and personal income distribution. In the first part of the paper, Piketty’s book “Capital in the XXI Century” is briefly reviewed. Piketty’s framework is discussed arguing that it can only partially explain levels and changes within personal income distribution. Piketty links the returns from capital r to the rate of growth of national income g in a very innovative way comparing them within a macroeconomic framework. He claims that when returns on capital rise more quickly than the overall economy and taxes on capital remain low, a vicious circle of ever-growing dynastic wealth and growing concentration of wealth takes place. However, the rise in the inequality of personal income distribution cannot only be explained by the rise of capital incomes. An analysis of the generation of personal incomes, and consequently of inequality, requires a suitable framework that links incomes at the macroeconomic level (national accounts) and incomes at the level of the individual/household. It is possible to set up this framework starting from individual endowments and their link to the productive structure: that is to what can be called the “generating function of personal income.” This function transforms personal endowments into personal earnings, given the productive structure, the technologies, and the market rules that determine the functional distribution. Personal income distribution and its inequality are linked to the functional one through the shares of capital and labor owned by each individual. The framework introduced here seems to be a suitable tool to account for the fact that personal income distribution is inextricably tied up to different sources of inequality in the distribution of national income. Sources come from institutional and productive structures (matrix Y), but also from the distribution of endowments and of individual/household entitlements (matrix S). This approach, we argue, allows for the assessment and evaluation of the effects of “ambitious new policies,” aimed at reducing poverty and inequality ex-ante, as suggested by Atkinson in his last book.     

The economic effects of lowering HIV incidence in South Africa: A CGE analysis

South Africa has the highest UNAIDS HIV severity rating: “generalised pandemic”. A country with this classification requires public health interventions aimed at the general population. This paper investigates the efficacy of one such policy, examining the national economic effects of an increase in condom use. We use an epidemiological model to estimate the impact of condom use on HIV infections distinguished by age, gender and race. The epidemiological model's outputs are input to an economy-wide dynamic general equilibrium model that distinguishes labour market participants by age, gender, race, labour market status and HIV status. We find that the programme generates gains in real consumption with a present value of approximately USD $30 billion, or USD $2000 per household.     

Product Market Integration,Rents and Wage Inequality

Globalization in the form of product market integration affects labor markets and produces winners and losers. While there are aggregate gains, it is in general ambiguous how inequality is affected. We explore this issue in a Ricardian model and show that it depends on the balance between “protection” and “specialization” rents. In particular, wage inequality among similar workers (residual wage inequality) may be U ‐shaped, at first decreasing and then increasing in the process of product market integration. Consequently, there may be gains in both the efficiency and the equity dimension until integration reaches a certain level at which a trade‐off arises.     

Labour Markets and Flexibility in the 1990s: The Europe-USA opposition revisited

Economists' contest on labour market flexibility has quickly pivoted around the stylised trade off between more flexibility and growth on the one hand and increased inequality of income on the other, the welfare implications of this trade off being too often assumed rather than verified. This article uses the essays collected in the Special Issue on Labour Markets and Flexibility in the 1990s of the International Review of Applied Economics to challenge the terms of this trade off as well as the related welfare assumptions. Some of the most popular tenets in the literature are assessed in the light of the evidence and the arguments put forward by the authors contributing to the Special Issue, in particular, the notion that the European labour market is rigid, the contention that more flexibility is imposed by international competition, or that labour market regulation weakens both employment and output growth, the belief that the main welfare cost of flexibility is increased inequality of earnings or the fear that flexibility may be primarily 'female'.     

Experimental Evidence on the Effects of Early Meetings and Activation

We analyse three Danish experiments with combinations of early and intensive active labour market policy. We find that frequent individual meetings between newly unemployed workers and their caseworkers have substantial (and significant) effects on employment rates in both the medium and long run. Group meetings or an “activation wall” show positive but insignificant effects. Based on information on the costs of running the experiments, active labour programmes, and public transfer payments, we analyse the impact on government budgets and we show that individual meetings improved budgets with up to 4,500 euros per unemployed worker. We also look at the impact for subgroups.     

Policy Influences on Unemployment: the European Experience

This paper considers the implications of four kinds of labour market policies for the 1980s rise in European unemployment: unemployment compensation, active labour market policies, employment protection legislation and taxation. It finds evidence that all have played a role in the determination of unemployment and discusses the mechanisms involved, the extent of the influence of each and the lessons learned from this experience. One of the main findings is that there is a trade‐off between wage inequality and unemployment. Policy has played a role in determining how a country responded to the negative macroeconomic shocks of the 1980s but policy alone cannot explain the full rise in European unemployment and North American wage inequality.     

The economics of the division of labour in early Chinese literature: With particular comparison to the ancient Greek thought

Like their Greek counterparts, a number of Chinese thinkers of the “Axial Period” wrote extensively on the division of labour. In particular, Kuan Chung, Hsün Tzu and Ssu-ma Ch’ien explicitly discussed economic issues related to the division of labour, contributing sophisticated analysis on the subject. In this article, we first examine Kuan Chung and his followers’ fairly interesting analysis of the economies of agglomeration of specialists, and Ssu-ma Ch’ien's deep insight into the Taoist invisible hand of the market in coordinating the division of labour. The common ground between them is a sound understanding of the role of market exchange in facilitating the social division of labour, but the latter goes much further in appreciation of the spontaneous market order. We then turn to Hsün Tzu's profound scholarship of specialised learning or doing and his Confucian theory of the origin of social division, highlighting, in particular, his Confucian notion of natural equality and utilitarian account of the formation of society. Similarity in profundity and influence notwithstanding, of greater interest, appears to be the remarkable differences between the Chinese scholars and the philosophers of classical Athens in respect of their study of the division of labour, and we therefore investigate how and why the Chinese treatment contrasts thus sharply with the Greek/Europeans.     

Economic Progress in Australia: An Analysis of Occupational Mobility*

Educational attainment and gender are firmly established in the labour economics literature as key determinants of an individual's economic standing at a given point in time. The concern of the present paper is to determine the impact of these characteristics on economic progress over time. A multinomial logit approach to estimating occupational attainment at various career points is employed. The use of this method of analysis in conjunction with the intertemporal linking of occupations enables us to provide a number of important insights into economic progress in the Australian labour market. Additional years of education are shown to increase the probability of employment in better jobs at the time of labour market entry and also to enhance career mobility. Analysis of male-female differences highlights the sizeable gap between the occupational distributions of these groups. Part of this difference may reflect inequality of opportunity between males and females in the Australian labour market.     

Wage inequality in a developing country: decrease in minimum wage or increase in education returns

In this paper we analyze the increase in wage inequality observed in the Uruguayan labour market during the last decade, by studying how the changes in minimum wage and returns to education affected the wage structure. Although in most developed countries a significant proportion of the increase in wage inequality is explained by a fall in the real minimum wage, this is not the case for the Uruguayan labour market. We observe that returns to education increased significantly, which could explain the increase of wage dispersion by its effects on the upper tail of the wage distribution. To derive these conclusions we follow a parametric and nonparametric quantile regression approach.     

United States income inequality: The concept of countervailing power revisited

This article uses some of the conceptual infrastructure associated with J.K. Galbraith’s “countervailing power” argument to explore the deep history of U.S. income inequality. Two explanatory variables—institutional power and distributive conflict—have played an integral role in the shifting patterns of U.S. income inequality since the late nineteenth century. The “commodified” power of large firms, manifested in aggregate concentration and the markup, exacerbates inequality while the “countervailing” power of organized labor, manifested in union density and strike activity, mitigates inequality. One implication of this research is that U.S. income inequality is unlikely to diminish unless the labor movement (or a comparable social movement) is strengthened.     

Employment Protection and Unemployment Benefits: On Technology Adoption and Job Creation in a Matching Model

We analyse the effects of different labour‐market policies (employment protection, unemployment benefits, and payroll taxes) on job creation and technology choices in a model where firms are matched with workers of different productivity and wages are determined by ex post bargaining. The model is characterized by two intertwined sources of inefficiency, namely a matching externality and a hold‐up externality associated with the bargaining strength of workers. The results depend on the relative importance of the two externalities and on worker risk aversion. “Flexicurity”, meaning low employment protection and generous unemployment insurance, can be optimal if workers are sufficiently risk‐averse and the hold‐up problem is relatively important.     

Gender Inequality and Economic Growth in Korea

Calibrating an endogenous‐growth model to Korean data, we analyse the impact of gender inequality in Korea on long‐term economic growth. We find that gender equality policies that lower discrimination in the labour market or that increase the time spent by a father on childrearing can contribute positively to female labour market participation and per capita income growth. The simulation results show that when the disparities between men and women at home and in the labour market are completely removed, the female labour force participation rate increases from 54.4 to 67.5%, and the growth rate in per capita income rises from 3.6 to 4.1% on average over a generation.     

Economic Reforms,Social Policy,and the Family Economy in Chile

Chile's long tradition of welfare programs included “generous” benefits for many working women. The social security system, however, perpetuated significant forms of gender and class inequality. In the 1970s and 1980s, poverty was greatly increased by sweeping market reforms. The military government responded to the high social costs with a minimal safety net which targeted expectant mothers, small children and the extremely poor, but was inadequate for most of the population. After the return of democracy, income distribution has improved in the 1990s. Yet, much needs to be done to promote family well-being through effective and participatory social policies.