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.     

The Importance of Tax Adjustments When Evaluating Wage Expectations*

Using elicited expectations of future gross salaries, we evaluate characteristics causing German students to make larger or smaller estimation errors. While students seem to underestimate actual salaries by 18 percent, we show that these errors are highly attributable to misconceptions of the progressive income tax. Developing a suitable adjustment procedure, we correct students’ estimates and find that errors decline by 12 percentage points. Conducting regression analyses, we reveal strong connections with students’ age, gender, work experience, secondary school track, and knowledge about student loans. These results change notably if not controlling for students’ misconceptions of the tax system.     

Working time, employment, and work sharing: Evidence from Sweden

We study three questions which are important for work sharing to increase employment. First, is there a negative long-run relation between working time and employment? Second, are hours per worker exogenous with respect to wages and employment? Third, can policy makers influence actual hours per worker? We formulate a theoretical model for employment, hours per worker, production, and real wages. A VAR model with cointegrating constraints is estimated by maximum likelihood using Swedish private sector data 1970:1–1990:4. We find (i) no long-run relation between hours per worker and employment, (ii) that hours per worker are endogenous with respect to the estimation of long-run parameters, and (iii) that legislated working time and hours per worker are related to each other in the long run. First version received: September 1997/final version accepted: June 1999     

Discounting in a world of limited growth

This paper explores the consequences fordiscounting of assuming limits to growth. One of the main determinants of the discount rate is the rate of economic growth. If growth rates decline in the future then the discount rate should not be constant but also decline over time. In fact, we would then need not a single discount rate but rather a variable discount schedule. This would imply higher present values for the distant future. The paper analyses how discount rates would vary with different assumptions about the patterns of growth and the pure rate of time preference.An earlier version of this paper was presented at the conference ECOLOGICAL ECONOMICS, Stockholm, August 1992. I am grateful for valuable comments from Partha Dasgupta, Gunnar Köhlin, Karl-Göran Mäler, Mike Young and two anonymous referees.     

Wage differentials and state‐private sector employment choice in Yugoslavia*

In this study we use the newly available Yugoslavian Labor Force Survey data to investigate wage differentials and employment decisions in the state and private sectors in Yugoslavia. For the analysis we use three empirical models that rely on different statistical assumptions. We extend the standard switching regression model to allow non‐normality in the joint distribution of the error terms. After correcting for the sector selection bias and controlling for workers’ characteristics we find a private sector wage advantage. The wage premium is largest for workers with low education levels and declining for workers with higher educational levels. Given the regulatory and tax policies that pushed the private sector into the informal sphere of the economy during the period covered by our data, we argue that the state/private wage gap is likely to grow in the future. This will make it increasingly difficult for the state sector to attract and retain highly skilled employees.     

Infinite desires in a finite world: Scarcity and its socio-economic implications

Natural resource scarcity has been making a resurgence as a dominant theme in recent economic writings. Most of the papers on this subject, however, have been narrow in their scope— discussing the issue mainly from a specific viewpoint or ideological stand. This paper attempts to give a balanced treatment to three economic positions (the traditionalist, the revisionist, and the unorthodox economist) taken toward natural resource scarcity. As such, the main objective of the paper is to present and analyze the basic arguments that have been advanced by the proponents of these three positions. It is the author's intent that this approach will help clarify the main factors that have been the source of disagreements among economists over the probable causes and ramifications of societal problems emanating from scarcity and in so doing provide a clearer perspective for prudent action.     

Trends in employment and the employment elasticity in manufacturing, 1971-92: an international comparison

Employment growth in manufacturing is limited by output growthin this sector, but the elasticity of employment with respectto output has varied widely in different regions and economies.This paper focuses attention on the idea that a major determinantof employment elasticity is the way the fruits of output growthare divided between employment growth and wage growth. But beforewe are able to determine the quantitative dimension of the trade-off,we have to allow for two other factors which affect the sizeof the cake available to labour in real terms. These are: (i)the elasticity of the wage bill with respect to output, whichdetermines the trend in the share of labour; and (ii) the priceeffect, depending partly on the rate of inflation and partlyon the movements of producer prices relative to consumer prices.A simple decomposition procedure is outlined in the paper whichallows us to quantify the relative importance of these factors,and hence give a clearer idea of the labour market outcome leaningto one or other of the two interests, employment growth andreal wage growth. The empirical analysis for different regionsof the world is carried out on time series data for the manufacturingsector collected by UNIDO from the national surveys of membercountries for the decades of the 1970s and the 1980s.     

Foreign capital and technology transfer in a dynamic model

We consider a dynamic three-sector dual-economy model when the technology transfer takes place from the foreign enclave to the labor-intensive domestic enclave. The long-run equilibrium and the comparative steady-state effects are analyzed. It is shown that the policy of subsidization to the foreign enclave may satisfy the conflicting tasks of raising national income and lowering unemployment simulataneously in the long run. Subsidization to a domestic enclave does not satisfy both the objectives.     

Overcoming environmental scarcity,inequality and structural imbalance in the world economy

The world economy faces two major threats: increasing environmental degradation and a growing gap between rich and poor. The root cause is that natural resources—or natural capital—is underpriced, and hence overly exploited, whereas human capital—the skills embodied in the workforce—is insufficient to meet demand. This outcome has three important consequences. First, all sectors of an economy will use too much natural resources relative to skilled labor. Second, the skilled workers throughout the economy will have higher real incomes and thus will be better off. Third, wealth inequality will increase, as the income gap between skilled and unskilled workers widens. Addressing this structural imbalance requires correcting the two underlying distortions, which are the chronic under-pricing of natural capital and the under-investment in human capital. This must be accompanied by a new suite of policies to provide improved incentives for more balanced wealth creation.     

Survey Evidence on Wage Rigidity and Unemployment: Sweden in the 1990s*

We document the results of a repeat survey, which updates Agell and Lundborg (1995) , on wage rigidity in a sample of 159 Swedish manufacturing firms, conducted during the severe Swedish recession of the 1990s. It is found that not even a prolonged period of very high unemployment and quite low inflation softened workers’ resistance to wage cuts. We discuss possible reasons for this. In addition, we report new evidence on underbidding, efficiency‐wage mechanisms, and unemployment persistence.     

大型企业增长过快对我国消费和就业的不利影响

资本有机构成的提高,造成了劳动所得所占份额的相对减少,从而使得消费性需求相对不足,阻碍了经济稳定增长。我国大型企业的资本有机构成,无论从绝对数量还是从增长率上看都要高于中小企业,这种现象在工业企业中表现的尤为突出,而在建筑业和第三产业中则不是特别明显。所以我国有必要大力促进中小企业的发展,促进第三产业的发展,以防止我国出现最终产品的使用结构失调和就业不足的现象,从而保证经济稳定高速的增长。     

Population Growth, Technological Adoption, and Economic Outcomes in the Information Era

In this paper we argue that population growth, through its interaction with recent technological and organizational developments, may account for many cross-country differences in economic outcomes observed among industrialized countries over the past 20 years. In particular, our model illustrates how a large decrease in the price of information technology can create a comparative advantage for high population growth economies to jump ahead in the adoption of computer- and skill-intensive modes of production. They do this as a means of countering their relative scarcity of physical capital. The predictions of the model are that, over the span of the information revolution, industrial countries with higher population growth rates will experience a more pronounced adoption of new technology, a better performance in terms of increased employment rates, a poorer performance in terms of wage growth for less skilled workers, a larger increase in the service sector, and a larger increase in the returns to education. We provide preliminary evidence in support of the theory based on an examination of broad wage movements, employment changes, and computer adoption patterns for a set of OECD countries. Journal of Economic Literature Classification Numbers: O33, J31, J11.     

The effects of structural change and economic liberalisation on gender wage differentials in South Korea and Taiwan

This paper investigates the sources of divergent trends in genderwage differentials in two important newly industrialised economies(NIEs), South Korean and Taiwan. As these economies have enteredthe 'post-industrial' phase of development, gender wage differentialsin Taiwan's manufacturing sector have widened, while in Koreathey have narrowed. Decomposition analysis is used to broadlyidentify sources of change in gender wage differentials. Multivariateregression analysis is relied on to differentiate the impacton the gender wage gap of (1) macro-levels policies, (2) institutionalfactors, and (3) shifts in labour demand and supply. In additionto the predictable effects of several standard supply-side variables,in Taiwan physical capital mobility is found to have contributedto a wider gender earnings gap. Women's greater concentrationin industries where capital is mobile may explain this result.The effects of capital mobility in Korea appears to differ,which may be due to the dissimilar characters of outward FDIfrom that country.     

John R. Commons and Government as Employer of Last Resort: Three Paths to a Progressive Right to Work

Abstract:

Today in the United States, a number of congressional Democrats endorse proposals that would establish a job guarantee for all Americans seeking work. Arguments for such a policy can be traced back at least to the work of John R. Commons, one of the first institutional economists. This article demonstrates that there are actually three arguments in Commons’s scholarship that provide a case for government to hire the unemployed by serving as employer of last resort. These arguments, each highlighted at a different point in Commons’s career, can be viewed in turn as legal, financial, and historical paths to public provision of work for the jobless—government employment that Commons considered part of “the right to work.” The article traces each path, highlighting insight that remains relevant and calling for greater attention to Common’s writings as a way to reclaim the right to work as a progressive cause.     

FDI in agricultural land, welfare and unemployment in a developing economy

The paper purports to examine the consequences of foreign direct investment (FDI) in agricultural land in a developing economy using a three-sector general equilibrium model with simultaneous existence of unemployment of both skilled and unskilled labour. The analysis finds that FDI in agriculture does not only improve national welfare unequivocally but also mitigates the unemployment problem of both types of labour. The paper theoretically justifies the desirability of flow of FDI in agriculture in the developing economies.     

Pattern Bargaining and Wage Leadership in a Small Open Economy*

Pattern bargaining with the tradables (manufacturing) sector as the wage leader is common in Europe. We question the conventional wisdom that such bargaining produces wage restraint. In our model, all forms of pattern bargaining give the same outcomes as uncoordinated bargaining under inflation targeting. Under a monetary union, wage leadership for the non‐tradables sector is conducive to wage restraint, whereas wage leadership for the tradables sector is not. Comparison thinking might lead the follower to set the same wage as the leader. Such equilibria can arise when the leader sector is the smaller sector, and these can promote high employment.     

Human Capital and Overinvestment in R&D*

We introduce a negative effect of technological development on human capital accumulation in a growth model with endogenous innovation and accumulation of human capital. This implies a negative externality of R&D in human capital accumulation. Some calibration exercises suggest that this distortion may be sufficiently strong not only to offset the usual effects of spillovers and of returns to specialization but also to induce overinvestment in R&D.     

Economic liberalization and welfare in a model with an informal sector

The paper reexamines the conventional results relating to inflow of foreign capital, removal of protectionism and structural reform programmes, in a small open economy in terms of a two-sector general equilibrium model with an informal sector. The paper shows that in the presence of labour market distortion and a protectionist policy, inflow of foreign capital may be desirable irrespective of the pattern of trade of the economy due to its favourable impact on welfare. But the welfare implications of tariff reductions and/or structural adjustment programmes, such as deregulating the formal sector labour market, depend crucially on the economy's trade pattern. The paper provides an answer to the question as to whether in a developing economy labour market reform and tariff reform should go hand-in-hand or whether one should precede the other for welfare improvement.
JEL classification: F10, F13, F21, O17.     

The Living Wage,Economic Efficiency,and Socio-Economic Wellbeing in a Competitive Market Economy

Conventional economic wisdom views a Living Wage as costly in term of economic efficiency and competitiveness. I argue, based on x-efficiency theory, that higher wages need not cause any economic harm and can, on the contrary, generate higher levels of material wellbeing. Higher wages can be expected to induce x-efficiency and technological change cost offsets. In this context, an effective living wage, one that is above some subsistence minimum, can have a net efficiency effect on the economy. Therefore, a living wage greater than the wage rate generated by the free market cannot be predicted to generate economic harm. With the institutional parameters in place to realize a living wage, the economic pie can be expected to grow to accommodate the living wage.