Real exchange rate and productivity in a specific-factor model with skilled and unskilled labour

The present study develops a two-sector specific factor model in which capital is mobile between sectors. We assume that the traded (non-traded) sector uses skilled (unskilled) labour for production. The theoretical model reveals that the real exchange rate (RER) response to a productivity shock depends on the countries’ relative abundance of skilled labour: a rise in traded productivity leads to a higher RER appreciation in a country whose relative skilled labour rate is high. Using panel data, structural break tests confirm that the skilled versus unskilled labour ratio may be a significant splitting variable. In the long run, the relationship between productivity and RER may be positive or negative, as suggested by the theoretical model, depending on the country’s relative abundance of skilled labour.     

Skilled–unskilled wage inequality,product variety,public input and increasing returns: A static general equilibrium analysis

The paper develops a four sector small open economy model with two traded final good sectors, a public intermediate good producing sector and a nontraded good sector producing varieties of intermediate goods. There are three primary factors: capital, skilled labour and unskilled labour. Industrial sector producing a traded good uses capital, intermediate goods and skilled labour as inputs. Intermediate goods producing sector also uses capital and skilled labour. Public input producing sector and the agricultural sector producing the other traded good use capital and unskilled labour as inputs. It is shown that, if production technologies are the same for the agricultural sector and the public input producing sector and if the scale elasticity of output is very low, then an increase in capital stock (unskilled labour endowment) raises (lowers) the skilled–unskilled wage ratio. However, an increase in skilled labour endowment does not produce any unambiguous effect. On the other hand, an increase in the tax rate on industrial output and/or an increase in the price of the agricultural product, armed with the same set of assumptions, lowers the skilled–unskilled wage ratio.     

Labour-market institutions, (un)employment,wages, and growth: theory and data

We analyse the implications of labour-market institutions on wage inequality in favour of skilled labour, on relative unemployment of unskilled labour, and on the economic growth rate in two clusters resulting from 27 OECD countries: Cluster 1, closely related with the Anglo-Saxon model, and Cluster 2, dominated by the Continental-European model. By linking the unskilled wage to the skilled one in Cluster 2, due to the indexation of social benefits to per-capita income, we accommodate the observed paths of the three variables in both clusters between 1991 and 2008: Cluster 1 presents a higher wage inequality in favour of skilled labour, a lower unemployment of the unskilled labour, and a better economic growth rate.     

Skilled–unskilled wage inequality,nontraded good and endogenous supply of skilled labour: A theoretical analysis

The paper develops a static four sector competitive general equilibrium model of a small open economy in which skilled labour is endogenously produced by the education sector and is mobile between a traded good sector and a nontraded good sector. Capital is also perfectly mobile among the education sector, skilled labour using traded good sector and the nontraded good sector. However, land and unskilled labour are specific to another traded good sector. We analyse the effects of change in different factor endowments and reduction in tariff rate on skilled–unskilled wage inequality. We find that the effect of a change in different parameters on wage inequality depends on the factor intensity ranking between two skilled labour using sectors and on the relative strength of the marginal effects on demand for and supply of nontraded final good. We also analyse the effects of changes in different parameters on the supply of skilled labour.     

Skilled–unskilled wage inequality: A general equilibrium analysis

The paper develops a static three sector competitive general equilibrium model of a small open economy in which skilled labour is mobile between a traded good sector and a non-traded good sector and unskilled labour is specific to another traded good sector. The capital is perfectly mobile among all these three sectors. We examine the effects of change in different factor endowments and of globalization on skilled–unskilled wage inequality. We find that the effect of a change of a factor endowment on wage inequality depends on the factor intensity ranking between two skilled labours using sectors and on the relative strength of the marginal effects on demand for and supply of non-tradable good. We also find that a decrease in the price of the product produced by skilled (unskilled) labour using traded good sector lowers (raises) the skilled–unskilled wage inequality.     

Low level equilibrium trap,unemployment, efficiency of education system,child labour and human capital formation

This paper builds an overlapping generations household economy model to examine the impact of adult unemployment on the human capital formation of a child and on child labour, as viewed through the lens of the adult’s expectations of future employability. The model indicates that the higher the adult unemployment rate in the skilled sector, the lesser is the time allocated by an unskilled adult towards schooling of her child. We also find that an increase in the unskilled adult’s wage may or may not decrease child labour in the presence of unemployment. The model predicts that an increase in child wage increases schooling and human capital growth rate only if the adults in the unskilled sector earn less than subsistence consumption expenditure. As the responsiveness of skilled wage to human capital increases, schooling and human capital growth rates increase. The model dynamics bring out the importance of education efficiency and parental human capital in human capital formation of the child. In the case of an inefficient education system, generations will be trapped into low level equilibrium. Only in the presence of an efficient education system, steady growth of human capital is possible. Suitable policies that may be framed to escape the child labour trap are discussed as well.     

Foreign capital inflow,skilled–unskilled wage inequality and unemployment of unskilled labour in a fair wage model

This paper has developed a three-sector general equilibrium framework that explains unemployment of both skilled and unskilled labour. Unemployment of unskilled labour is of the Harris–Todaro (1970) type while unemployment of skilled labour is caused due to the validity of the FWH in the high-skill sector. There are two types of capital one of which is specific to the primary export sector while the other moves freely among the different sectors. Inflows of foreign capital of either type unambiguously improve the economic conditions of the unskilled working class. However, the effects on the skilled–unskilled wage inequality and the extent of unemployment of both types of labour crucially hinge on the properties implied by the efficiency function of the skilled workers.     

Industry estimates of the elasticity of substitution and the rate of biased technological change between skilled and unskilled labour

We estimate the elasticity of substitution between skilled and unskilled labour and the pace of skill-biased technological change at the industry level. The data is compiled from the March extract of the Current Population Survey (CPS) from 1968 to 2006. Industry information provided by the survey is used to group workers into 13 industry categories and education levels are used to dichotomize workers as skilled or unskilled. We construct measures of the ratio of skilled to unskilled employment and the ratio of skilled to unskilled wages in each industry. Using a relationship implied by profit maximizing behaviour on the part of representative firms, this data generates estimates of structural parameters. We find considerable differences across industries in the elasticity of substitution between skilled and unskilled labour. Furthermore, while most industries have experienced skill-biased technological change, the pace of this change has varied widely across industries.     

TRADE IMPACTS ON SKILL ACQUISITION VIA VARIETY EXPANSION*

We show that trade enhances skill formation through gains from trade via variety expansion à la Krugman. Although workers are identical as unskilled labour, they differ in productivity as skilled labour. Workers become skilled by incurring training costs. By introducing these settings into a trade model with monopolistic competition, we show that, although trade makes all agents better off, its effect is stronger for skilled than unskilled workers, which stimulates skill acquisition. As a result of less productive workers becoming skilled, the wage dispersion among skilled workers increases.     

Training,migration, and regional income disparities

"It is assumed that there are two regions, that production requires both skilled and unskilled labour, and that one region is innately more productive than the other. Workers, who differ in their migration or training costs, make individually rational decisions. In equilibrium the ratio of skilled workers to unskilled workers is always higher in the more productive region. Average incomes differ between regions because regional differences in wage rates are reinforced by regional differences in the structure of employment. The model is also used to analyse the effects of policies intended to equalize the distribution of income."     

Skilled and unskilled wage dynamics in Italy in the 1990s: changes in individual characteristics,institutions, trade and technology

In this paper, we use individual micro data on workers combined with industry and regional data to study the wage dynamics of skilled and unskilled workers in Italy in the 1991–1998 period. In contrast to previous empirical studies, our data make it possible to analyse, within a single framework, the role of many of the factors indicated in the literature as possible determinants of skilled and unskilled wage dynamics: changes in the individual characteristics of workers, changes in labour market institutions, increasing international integration, and skill‐biased technological progress. Our results show that international integration, both in terms of trade in goods and in terms of international labour mobility, plays a role in determining the wage dynamics of skilled (white‐collar) and unskilled (blue‐collar) workers. Moreover, in line with labour economics research, our findings show that the individual characteristics of workers and the institutional variables are more relevant in explaining skilled and unskilled wage dynamics than wage differentials.     

The role of uncertainty in forecasting employment by skill and industry

We show that the macroeconomic uncertainty series from Jurado, Ludvigson, and Ng (2015) contains information to forecast employment. The results indicate that the uncertainty measure is weak at forecasting the skilled labour but significantly carries forecasting information on the unskilled labour. The forecasting information increases if the sample is restricted to construction and manufacturing industries. Using rolling regressions to conduct a simulated out-of-sample forecasting exercise, we find that the uncertainty measure contains forecasting information for the unskilled labour in those industries for two quarters ahead. By providing detailed information about the forecasting power of uncertainty by skill and industry, this study will be helpful in designing more efficient labour market policies.     

A MACROECONOMIC PERSPECTIVE ON SKILL SHORTAGES AND THE SKILL PREMIUM IN NEW ZEALAND*

Qualification and occupation‐based measures of skilled labour are constructed to explain the skill premium – the wage of skilled labour relative to unskilled labour in New Zealand. The data exhibit a more rapid growth in the supply of skilled labour than the skill premium, and a very large increase in the real minimum wage over the period from 1986 to 2005. We estimate the rate of increase in the relative demand for skills and the elasticity of substitution. The data are consistent with skill shortages and a skill‐bias technical change. We examine the effects of the minimum wage, capital complementarity, and the exchange rate on the skill premium. We also test whether the demand for skills and the elasticity of substitution varied across industries and over time.     

Skill premium in Portuguese manufacturing industries

The debate between the skill-biased technological change (SBTC) approach and the international trade (IT) explanation to obtain the best explanation for the wage gap between skilled and unskilled workers continues. In this article, we divide the Portuguese manufacturing industries into high-tech and low-tech and study the approach that best justifies the wage gap, for the period between 2007 and 2014. The results point out that the SBTC approach is the main explanation to the formation the wage gap between the labour force with tertiary education (skilled) and with secondary and primary education (unskilled).     

Agglomeration and fair wages

Abstract.  This paper implements a fair wage constraint into an analytically tractable core-periphery agglomeration model. This enables us to study the role of imperfect labour markets for the pattern of agglomeration. In the short run, a marginal increase in fair wage preferences leads to an unambiguous compression of the national factor price differential between skilled and unskilled labour, involving an increase in the unemployment rate of unskilled workers. In the long run, this mechanism renders full dispersion of an unstable equilibrium already at higher trade costs than in perfect labour markets. There is a tendency for fair wage preferences to enforce agglomeration.     

Wage inequality and skill supplies in a globalised world

We investigate empirically, and explain theoretically, how the relative wages of skilled and unskilled workers vary with their relative supplies in open economies. Our results combine the insights of simple labour market and trade models. In countries that trade, relative wages respond inversely to variation in skill supplies, but the response decreases with the degree of openness to trade and is small in very open countries. To reconcile our results with standard estimates of the elasticity of substitution between skilled and unskilled workers, we allow also for the influence of directed technical change and income elasticity of demand for skill-intensive goods.     

Exporting firms and the demand for skilled tasks

This paper explores the link between exports and the demand for skilled tasks. Using the Chilean Encuesta Nacional Industrial Anual (ENIA), an annual census of manufacturing firms, we first show that Chilean exporters utilize more skills than Chilean non‐exporters. More importantly, we establish a distinct pattern of task differentiation among exporters both within skilled and unskilled tasks. Exporting firms demand the services of skilled specialized workers (engineers) as opposed to skilled administrative workers and managers. In addition, exporters demand less unskilled labour, especially blue‐collar operatives. This suggests that exporters substitute skilled engineers for unskilled blue‐collar workers to perform export‐related tasks.     

A model of firm heterogeneity in factor intensities and international trade

Empirical evidence suggests that exporters are, in addition to being more productive, significantly more skilled‐labour intensive than non‐exporters. In a setting that captures both these features, we show that the firm selection induced by trade liberalization works along two dimensions. First, export growth increases competition for skilled labour. This leads to the exit of some of the skilled‐labour intensive firms, while benefitting unskilled‐labour intensive ones. Second, within the group of firms with the same factor intensities, the reallocation of factors is towards the exporters. We show that the increased competition for skilled labour dampens the positive effect of trade liberalization on sector‐wide TFP and real income.     

Labour mobility and wage inequality in the presence of endogenous foreign investment

This paper examines the impact of labour mobility and increased competition on skilled–unskilled wage inequality and foreign investment. Unlike the existing literature this paper considers a model where foreign investment is endogenously determined. The paper shows that in the shortrun, inflow of either skilled or unskilled labour has no effect on wage inequality but increased competition increases wage inequality. Inflow of either type of labour increases foreign investment but the impact of increased competition on foreign investment cannot be unambiguously determined. Inflow of skilled labour increases wage inequality in the longrun and its effect on foreign investment is positive. Increased competition in the longrun increases wage inequality, foreign investment and welfare.     

The impact of material and service outsourcing on employment in Thailand's manufacturing industries

With increasing emphasis on the importance of outsourcing, the ‘fear of job losses’ has been of significant interest, not only in the developed countries, but also in the developing countries. In this article, we empirically investigate the impacts of intermediate inputs (material) and services outsourcing on the relative demands for skilled and unskilled labour in Thailand's manufacturing sectors from 1999 to 2003. Based on the aggregation of establishment-level data at 4-digit industrial classification, we find that both intermediate inputs and service outsourcing are relatively skill-biased. Further, our results show that intermediate inputs outsourcing has negative impacts on the relative demands for skilled and unskilled workers, whereas service outsourcing shifts the demand towards skilled workers at the expense of unskilled workers.