The estimation of union wage differentials and the impact of methodological choices

This paper demonstrates that methodological differences can matter a lot in the estimation of union/non-union wage differentials. Using individual-level data from the 1991 Wave of the British Household Panel Survey and a model evolved from replicating six existing British studies, we find that the model specification adopted has an important impact on the estimated differential and that the choice of which group means to use when evaluating the mean differential in multi-equation models is of considerable importance. There are also important differences between membership and coverage differentials and the earnings measure used and sample selected also make a difference. However, apart from firm size, the contents of the control vector used is not found to be of great importance.     

Inter-city wage differentials and the value of air quality

This paper proposes a method of valuing air quality based on differences in wages among cities. Using an urban location model it is shown that the supply of labor to any city increases with the real wage and with air quality in the business district. If individuals have log-linear utility functions then the value at home and at work of an equal proportionate reduction in pollution throughout the city can be computed from the coefficients of the labor supply function. The computations are illustrated for one-digit labor supply functions estimated from 1970 Census data.     

The effect of trade and FDI on inter-industry wage differentials: The case of Mexico

Taking advantage of the liberalization process under NAFTA, this paper assesses the relative importance of the degree of trade openness and Foreign Direct Investment (FDI) in explaining inter-industry wage differentials for the case of Mexico. Using INEGI's National Survey of Urban Employment for the period 1994–2004, the empirical analysis is conducted on two stages. In the first stage, individual wages are regressed on worker characteristics, job and firm attributes, informality and a set of federal entity and industry indicators. In the second stage, inter-industry wage differentials (derived from the coefficient estimates of the industry indicators) are regressed on trade and FDI variables. The main findings show that trade openness does not have a statistically significant effect on inter-industry wage differentials, whereas for the case of FDI, a positive nonlinear relationship is found to exist.     

Self/paid-employment, public/private sector selection, and wage differentials

We use Probit models to account for the double selection problem of choice between, on the one hand, self- and paid-employment and, on the other, employment in the public and private sector. These models provide corrections for sample selection in wage equations for paid employees in the public and private sectors. Using a modified version of the Oaxaca and Ransom [J. Econom. 61 (1994) 5] procedure, we decompose the wage gap between the public and private sectors into a portion attributable to differences in characteristics, the public sector advantage, the private sector disadvantage and unobserved selection effects. Rich data for the Republic of Cyprus, a thriving economy with institutional features reminiscent of a developing economy, help determine the choice of type (self/paid) and sector (public/private) of employment. The human capital model describes the wage determination process satisfactorily. The size and distribution of public sector rents between men and women are similar to those in North America and are bracketed by results for developing countries.     

Incidence and duration of unemployment spells: Implications for the male–female wage differentials

We demonstrate in this paper that the incidence of unemployment and duration of unemployment spells affect the male–female gender wage differential. The results indicate that after controlling for sample selectivity bias in the wage equation, the incidence of unemployment and duration of unemployment spells account for about 14.2% and 39.6%, respectively, of the wage differential that exists between males and females. We observed that while the duration of unemployment accounts for a substantial portion of the wage differential in both the service (48.8%) and the manufacturing (17.0%) sectors, the impacts of the incidence of unemployment and duration of unemployment spells variables on the wage differential are rather small in the service (0.07%) and the manufacturing (1.6%) sectors. Also, high incidence of unemployments is associated with low wages for males and females in all samples. In contrast, longer durations of unemployment spells tend to increase males’ wages and decrease females’ wages in the full and service sector samples. At the macro level, the results seem to suggest that promotion of gender wage equality should be associated with policies that will minimize the female's incidence of unemployment and duration of unemployment spells.     

Parenthood and the earnings of married men and women

We use longitudinal data to examine the relationship between parenthood, wages, and hours worked for married men and women. We find evidence of negative selection into parenthood, substantial child-related reallocations of time within the household, and heterogeneity in the effects of children on household behavior. In households in which the wife experiences an interruption in employment, mothers' wages and hours worked fall, while fathers' hours and wages increase. In households in which the mother remains continuously attached to the labor force, however, there is no evidence of a wage decline for mothers, and the hours worked by fathers decrease substantially.     

Estimating a tournament model of intra-firm wage differentials

We consider the estimation of a tournament model with moral hazard (based on Rosen (1986), AER)) when only aggregate data on intra-firm employment levels and salaries are available. Equilibrium restrictions of the model allow us to recover parameters of interest, including equilibrium effort levels in each hierarchical stage of the firm. We illustrate our estimation procedures using data from major retail chains in the US. We find that only a fraction of the wage differential directly compensates workers for higher effort levels, implying that a large portion of the differentials arises to maintain incentives at lower rungs of the retailers.     

Measuring wage effects of plant size

There are large plant size–wage effects in the Nordic countries after taking into account individual and job characteristics as well as systematical sorting of the workers into various plant-sizes. The plant size–wage elasticities we obtain are, in contrast to other dimensions of the wage distribution, comparable to the plant-size effects in other countries such as the U.S. with completely different institutions of wage setting. We also investigate the consequence of measurement error associated with the common practice of using midpoints of plant-size classes to estimate the plant size–wage elasticity. Our results indicate that using size–class midpoints yields essentially the same results as using exact measures of plant size.     

Regional Wage Gaps,Education and Informality in an Emerging Country: The Case of Colombia

This paper uses Colombian micro-data to analyze the role of education and informality in regional wage differentials. The hypothesis is that apart from differences in the endowment of human capital, regional heterogeneity in the incidence of informality is another important source of regional wage inequality in emerging countries. This is confirmed by the evidence from Colombia, which also reveals remarkable spatial heterogeneity in the wage return to individuals’ characteristics. Regional heterogeneity in returns to education is especially intense in the upper part of the wage distribution. In turn, heterogeneity in the informal pay penalty is more relevant at the bottom.     

Wage drift and minimum contractual wage: Theoretical interrelationship and empirical evidence for Italy

A two-stage wage setting process whose outcomes are identified in the wage drift, at the local level, and in the tariff wage, at the central level, is analyzed. The impact of insider and outsider factors in each stage of the bargaining process is investigated both theoretically and empirically for Italy. In the light of its extreme policy relevance, particular attention is devoted to the analysis of the interrelationships between the wage drift and the tariff wage. Panel data estimation carried out on a sample of 105 Italian three-digit industries and 41 contract groups, reveals that: (1) Insider factors (productivity, inventories and the insider workers power) are important determinants of the wage drift while outsider factors (aggregate wage and unemployment) have a prominent role in determining the tariff wage. (2) Wage drift and tariff wage are closely interrelated.     

Suburbanization and transportation in the monocentric model

This paper presents a version of the monocentric city model that incorporates heterogeneous commuting speeds by introducing radial commuting highways. This model implies that metropolitan area population spreads out along new highways, which are positively valued by residents. Simulations of conservative specifications of the model imply that each additional highway ray causes about a 10 percent decline in central city population. Given observed central population declines and urban highway construction between 1950 and 1990, this model implies that highways can account for an important part of urban population decentralization.     

The transformation of the wage and performance appraisal system in a Japanese firm

This paper analyses how performance appraisal has affected the wages of employees in a unionized Japanese firm over time, using firm-level wage and performance appraisal data. Data show that the wage and performance-appraisal systems have been shifting to a performance basis, and away from the heavy reliance on age and seniority characteristic of the old systems. In the process, wage differentials among employees are becoming wider, particularly among those 37 to 41 years old and those 49 to 55 years old. Management introduced the new wage system through a process of concessionary bargaining. Surprisingly, employees, rather than the enterprise union, were able to convince management to modify their initial plans during bargaining over the new wage system.     

Search frictions,real wage rigidities and the optimal design of unemployment insurance

In this paper, we study the optimal unemployment benefits financing scheme when the economy is subject to labor market imperfections characterized by real wage rigidities and search frictions. The US unemployment insurance financing is such that firms are taxed proportionately to their layoffs to finance unemployment benefits. Using DSGE methodology, we investigate how policy instruments should interact with labor market imperfections. It is shown that wage rigidities in a search and matching environment cause welfare costs, especially in the absence of an incentive-based unemployment insurance. This cost is mainly due to the distorting effect of wage rigidities which generate inefficient separations. We show that the optimal unemployment benefits financing scheme – corresponding to the Ramsey policy – offsets labor market imperfections and allows implementation of the Pareto allocation. The second-best allocation brings the economy close to the Ramsey allocation. The implementation of the optimal policies clearly highlights the role of labor market institutions for short-run stabilization.     

Employment and wage practices of Japanese firms in the Philippines: convergence with Filipino-Chinese and Western-owned firms

In foreign-owned Philippine firms, human resource approaches and practices tend to converge. Japanese-owned firms localize their human resource practices by emphasizing local standards and practices in compensation, hiring, recruitment, job assignments and the like. On the other hand, Western-owned firms tend to adopt well-known Japanese style practices. Filipino-Chinese-owned firms tend to be traditional, emphasizing both informal and hierarchical control mechanisms which put a premium upon loyalty and trust, through familistic, informal but hierarchical control mechanisms. As the owners of these firms pass on control to the next generation, they tend to hire professional managers. These managers include younger generation Filipino-Chinese educated abroad. They are torn between the rational, and traditional norms and practices insisted upon by their Confucian-oriented elders, and the demands of a competitive and ever-changing technology and economy.

It is quite meaningless to attach adjectives like ‘Japanese’, ‘Filipino-Chinese’ or ‘Western’ to universal concepts like industrial relations and human resource approaches - the search for the best approach in work relations is beyond the issue of convergence or divergence.     

Wages and prices: Are workers fully compensated for cost of living differences?

This paper investigates the equilibrium relationship between wages and prices across labor markets. Of central interest is the extent to which workers receive higher wages to compensate for differences in the cost of living. According to the spatial equilibrium hypothesis, the utility of homogenous workers should be equal across labor markets. This implies that controlling for amenity differences across areas, the elasticity between wages and the general price level across areas should equal one, at least under certain conditions. I test this hypothesis and find that the predicted relationship holds when housing prices are measured by rents and the general price level is instrumented to account for measurement error. When housing prices are measured by housing values, however, the wage-price elasticity is significantly less than one, even using instrumental variables. Rents reflect the price paid for housing per unit of time and are arguably the superior measure. Thus, findings in this essay provide support for the full compensation hypothesis. These findings also have important implications for researchers estimating the implicit prices of amenities or ranking the quality of life across areas.     

Entrepreneurship as a non-profit-seeking activity

It is typically assumed that people engage in entrepreneurship because there are profits to be made. In contrast to this view, this paper argues that entrepreneurship is more adequately characterized as a non-profit-seeking activity. Evidence from a broad range of authors and academic fields is discussed showing that entrepreneurship does quite generally not pay in monetary terms. Being an entrepreneur seems to be rather rewarding because it entails substantial non-monetary benefits, like greater autonomy, broader skill utilization, and the possibility to pursue one’s own ideas. It is shown how incorporating these non-monetary benefits into economic models of entrepreneurship can lead to a better understanding of the phenomenon.

Marginal effects of public employment on unconditional distribution of wage income in China

This paper examines the marginal effects of an employment expansion in China’s public sector on the unconditional distribution of “wage income” using the unconditional quantile estimation suggested by Firpo et al. (2009). Empirical data from the China Health and Nutrition Survey is split into three sub-samples to eliminate the effects of the Asian financial crisis in 1997 and the subprime financial crisis in 2008 on our empirical results. To explore the marginal effects, the empirical unconditional distributions of wage income “before” and “after” an expansion of the public employment have been graphed and compared. It has been found that an expansion of China’s public employment reduces the dispersion of wage income and hence alleviates income inequality in China. Besides, an expansion of public employment makes the symmetrical unconditional distribution of wage income become leftward skewed. Given these findings, an expansion of the public employment caused by the strategy of “guojin mintui” could mitigate China’s income inequality.     

Regional migration in Spain: the effect of personal characteristics and of unemployment,wage and house price differentials using pooled cross-sections

We present an empirical model of individual migration using time-series of cross-sections from the Spanish Labour Force Surveys 1987–1991. Personal characteristics not only have an important direct effect on migration decisions but also alter the effect of regional variables. We find that the estimated probability of migration for the unemployed not registered, who are known for certain not to receive benefit, is higher than that of the employed which in turn is higher than that of the unemployed registered, which includes all the benefits recipients. An important finding is that the effect of regional unemployment on migration is positive for the unemployed not registered but is important and negative for those registered.     

On revenue recycling and the welfare effects of second-best congestion pricing in a monocentric city

This paper examines congestion taxes in a monocentric city with pre-existing labor taxation. When road toll revenue is used to finance labor tax cuts, 35% of the optimal road tax in our numerical model does not reflect marginal external congestion costs, but rather functions as a Ramsey–Mirrlees tax, i.e. an efficiency enhancing mechanism allowing for an indirect spatial differentiation of the labor tax. This adds a quite different motivation to road pricing, since welfare gains can be produced even in absence of congestion. We find that the optimal road tax is non-monotonic across space, reflecting the different impacts of labor supply elasticity and marginal utility of income, which both vary over space. The relative efficiencies of some archetype second-best pricing schemes (cordon toll, flat kilometer tax) are high (84% and 70% respectively). When road toll revenue is recycled lump-sum, the optimal toll lies below its Pigouvian level. Extensions in a bimodal framework show that the optimality of using road toll revenue to subsidize public transport depends on the initial inefficiency in public transport pricing.     

生产率与创新工资门槛假说:基于中国经验数据分析

在现有理论基础上,结合荷兰等国家的经验事实,本文提出了创新工资门槛假说:工资上涨促进生产率的提高,但存在门槛效应。基于Hansen提出的门槛回归模型,使用中国国有企业和三资企业省级面板数据证实了该假说的存在。结果表明,国有企业中,工资水平低于23012.16元的省份有6个,他们可能陷入低工资—低创新陷阱;工资水平处于创新最佳状态的省份有22个。三资企业中,7个省份的工资水平处于创新的最佳状态。在控制变量中,国内市场需求与生产率正相关。