Elasticity of substitution and productivity, capital and skill intensity differences across firms

This paper, instrumented with six theorems, shows that differences between firms in labor productivity, capital intensity and relative demand for skilled labor can be explained by differences in the substitution parameters between capital, skilled and unskilled labor in the presence of skill biased technical change.     

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.     

技能偏向型技术进步必然加剧工资不平等吗?

劳动经济学界在20世纪90年代形成了共识:美国等OECD国家从70年代末到90年代末的教育升水(不同教育水平工人的工资差距)持续上升是由技能偏向型技术进步导致的。但90年代共识无法解释第二次世界大战后美国在技能偏向型技术进步下教育升水并非总是上升的事实。此外其理论基础在于技能偏向型技术进步下抑制低技能劳动力需求的腐蚀效应和提升高技能劳动力需求的市场规模效应会加剧工资不平等。本文指出其理论基础的缺陷,并将教育效率和劳动力市场的技能供求关系整合在一个技能偏向型技术进步与工资不平等都处于内生演化的动态模型中。本文证明技术进步率的提升在短期会提升工资不平等,但当教育系统的效率处于一定的区间时,技能偏向型技术进步在长期会降低工资不平等。因此,本文的研究挑战了90年代共识的悲观论点,并丰富了有关技能偏好型技术进步对于工资不平等影响的研究。     

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.     

Changes in income distribution and welfare from greater immigration of unskilled workers

This paper considers the consequences of greater immigration of unskilled labor on income distribution and welfare in the receiving country. To address these issues, both the sending and receiving countries are represented in a static general equilibrium model which distinguishes between skilled and unskilled labor and which allows prices to be determined endogenously. In this framework an inflow of unskilled labor is likely to reduce wages of unskilled labor, but whether capital or skilled labor benefits depends upon demand elasticities, elasticities of substitution in production, and differences across countries in the productivity of unskilled labor. National welfare in the receiving country is likely to rise, to the extent that the relative price of importable goods falls, non-residents already in the country receive lower wages, immigrants receive lower wages than those paid to domestic workers, and immigrants cause little increased demand for public services and transfer programs.     

Second‐Best Taxation of Incomes and Non‐Labor Inputs in a Model with Endogenous Wages

This paper considers a Mirrleesian optimal income tax model wherein labor inputs are not perfect substitutes and their wages are determined endogenously. It shows: (i) If skilled and unskilled workers are Edgeworth complements, skilled workers will necessarily face a marginal subsidy and unskilled workers a marginal tax on their incomes (these may not be the case if skilled and unskilled workers are Edgeworth substitutes); and (ii) redistributive concerns call for taxation of those inputs whose elasticity of complementarity with skilled labor is larger than with unskilled labor, and subsidization of those whose elasticity of complementarity is smaller.     

The world elasticity of labor substitution across education levels

We estimate the world elasticity of substitution between labor types on a very well-known data set. Using enrollment ratios and government expenditures on education as instruments, the plausible elasticities varying from 2.00 to 3.21 for the “college-completed” definition suggests imperfect substitution between skilled and unskilled labor. Considerably higher values are found for the “secondary” and “primary-completed” definitions. Overall, the higher the threshold for defining skilled labor, the lower the elasticity and less likely is the switch between types of labor. These findings complement micro-evidence and support stronger links between productivity and output for the “college educated” labor definition.     

Tuition Fees and the Dual Income Tax: The Optimality of the Nordic Income Tax System Reconsidered

Abstract. We examine the optimal tax and education policy in the case of a dual income tax. Incorporating an educational sector and endogenous capital taxation, we show that the results in Nielsen and Sørensen's study are vulnerable with respect to assumptions on the elasticity of unskilled labor supply. Tax progressivity results residually, whereas educational policy guarantees an optimal tax wedge on, but not necessarily efficiency in, educational investment. The less elastic are the unobservable educational investment and skilled labor (the latter relative to unskilled labor supply), and the more educational policy cares about the skilled labor supply, the more progressive the tax system will be. Education will be subsidized on a net basis if the complementarity effect on the skilled labor supply is strong and important; however, there is also an offsetting substitutability effect of the unskilled labor supply at play.     

Analyzing skilled and unskilled labor efficiencies in the US

In this paper, I analyze the time paths of the efficiencies of skilled and unskilled labor in a production framework where skilled and unskilled labor are imperfect substitutes. Their implications for economic growth and wage inequality in the US between 1950 and 2005 present two main findings. First, although skilled labor efficiency has a strong upward trend, I find no evidence of acceleration in its growth rate to support the common view that there has been an acceleration in the new skilled-biased technologies. Second, beginning around 1970, there has been a decline in the absolute level of the efficiency of unskilled labor, implying that the decline has played a significant role in the overall productivity slowdown and the substantial widening in the US wage structure.     

Economic transition and gender differentials in wages and productivity: Evidence from Chinese manufacturing enterprises

We use firm-level data to analyze male–female wage differences in Chinese industry in the late 1990s. Our estimates indicate that employers' discrimination against women was not a significant source of the gender wage gap in Chinese state-owned enterprises. Instead, we find that the relative wage of unskilled female to male workers was higher than their relative productivity. This result indicates that unskilled female workers in the state sector had historically received wage premiums and consequently accounted for a disproportionate share of the sector's labor surplus.     

Brain drain,illegal migration and capital exports from less developed economies: a neoclassical approach

This model shows that LDC's brain drain triggers emigration of unskilled labor and capital exports, skilled workers and agricultural capitalists gain, unskilled workers and industrial capitalists lose, and demodernization of the economy results. Demodernization of the economy occurs when labor force and output of the industrial sector decrease, and employment and production in agriculture increase. The problem analyzed in this model is what happens to the incomes of those who are left behind when some of the skilled workers migrate abroad. The results show that with the exodus of both skilled labor and capital, the marginal productivity of unskilled workers in industry also falls below the unskilled wage. Although one would expect a brain drain to result in gains for those skilled workers who remain in the source country, and for the capital owners who receive unskilled workers as a result of emigration, the losers are the unskilled workers and the capitalists in the sector where the migrants worked.     

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.     

Factor price overshooting with trade liberalization: theory and evidence

This paper develops an intra‐industry trade model with skilled and unskilled labor as factors of production, endogenous accumulation of skilled labor and firm heterogeneity in factor intensities to examine the effect of trade reforms on factor prices. Since exporters are more skill intensive than non–exporters, a decrease in trade barriers initially increases wage inequality between skilled and unskilled workers, as a result of an increase in the relative demand for skilled labor. Over time, however, as agents respond to the change in relative wages by investing in skilled labor, the relative wage of skilled labor decreases. Evidence from Chilean plant–level data supports the idea of factor price overshooting with trade liberalization.     

A Directed Search Model of Inequality with Heterogeneous Skills and Skill–Biased Technology

In this paper I analyse the directed search/matching problem in an economy with heterogeneous skills and skill–biased technology. A unique symmetric equilibrium exists and is socially efficient. Matching is partially mixed in the equilibrium. A high–tech firm receives both skilled and unskilled applicants with positive probability, and favours skilled workers, while a low–tech firm receives only unskilled applicants. The model generates wage inequality among identical unskilled workers, as well as between–skill inequality, despite the fact that all unskilled workers perform the same task and have the same productivity in the two types of firms. Inequality has interesting responses to skill–biased technological progress, a general productivity slowdown, and an exogenous increase in the skill supply elasticity.     

Rural–urban human capital disparity and skilled–unskilled wage inequality in China

This paper builds three‐sector general equilibrium models to investigate how a shrink of rural–urban human capital disparity generates an impact on skilled–unskilled wage inequality in China. In the basic model where the urban skilled sector and the urban unskilled sector have no upstream and downstream linkage, we find that the wage inequality will be narrowed down if the urban skilled sector is more capital intensive than the urban unskilled sector. To capture the characteristic of China's state capitalism, we build an extended model where the urban skilled sector acts as an upstream industry for the urban unskilled sector, and find that the wage inequality will be reduced if the substitution elasticity of unskilled labor and intermediate product in the urban unskilled sector is large enough. When we consider the factual characteristics of the Chinese economy, our models predict that a shrink of rural–urban human capital disparity will be helpful to reduce the skilled–unskilled wage inequality in China.     

APPROPRIATE TECHNOLOGY AND INCOME DIFFERENCES

This article studies the relative productivity of skilled to unskilled workers across countries. Relative productivities are broken down into the human capital embodied in skilled workers and relative physical productivities (reflecting production techniques). I find that skilled workers from poorer countries embody less human capital and are also relatively less physically productive. Furthermore, results show that production techniques are inappropriate for most low‐income countries, and these countries experience large increases in GDP per capita by increasing the relative physical productivity of skilled to unskilled workers. This suggests that there are significant barriers to the adoption of skill‐complementary technologies.     

Tariff Elimination and the Wage Gap in an Industrial Specific Factors Model*

A specific factors model of 458 US manufacturing industries simulates the effects of eliminating manufacturing tariffs on unskilled and skilled wages. The model assumes constant elasticity substitution, industry‐specific capital inputs, and mobile unskilled and skilled labor. Tariff elimination slightly lowers both unskilled and skilled wages, and increases the skilled wage gap. Industry outputs and capital returns absorb the negative impact of the falling tariffs with losses concentrated in more highly protected industries and most industries enjoying small positive outcomes.     

We Can Work It Out: The Impact of Technological Change on the Demand for Low-Skill Workers

There is little doubt that technology has had the most profound effect on altering the tasks that we humans do in our jobs. Economists have long speculated on how technical change affects both the absolute demand for labour as a whole and the relative demands for different types of labour. In recent years, the idea of skill‐biased technical change has become the consensus view about the current impact of technology on labour demand, namely that technical change leads to an increase in the demand for skilled relative to unskilled labour painting a bleak future for the employment prospects of less‐skilled workers. But, drawing on a recent paper by Autor, Levy and Murnane (2003) about the impact of technology on the demand for different types of skills, this paper argues that the demand in the least‐skilled jobs may be growing. But, it is argued that employment of the less‐skilled is increasingly dependent on physical proximity to the more‐skilled and may also be vulnerable in the long‐run to further technological developments.     

Relative Demand for Skills in Swedish Manufacturing: Technology or Trade?

The rate of change in the share of skilled labor has increased steadily over the past 35 years in Swedish manufacturing. A closer inspection of the period after 1970 indicates that, while relative supply changes of skilled labor seem to have been the main driving force behind the growing skill shares in manufacturing industries over the period 1970–85, an acceleration in the relative demand for skills appears to have propelled higher skill shares during the late 1980s and at the beginning of the 1990s. Consistent with such a development is the finding of an increasing degree of complementarity between knowledge capital and skilled labor, and that Swedish manufacturing firms, in recent years, have invested heavily in R&D. There is also some support for the belief that intensified competition from the South has increased the relative demand for skilled labor. However, the impact appears to be small and essentially driven by the textile industry.     

Does Outsourcing Provision Lead to Wage Inequality? New Evidence from Thailand's Establishment‐level Data

The impacts of outsourcing provision—the arrangements whereby a firm carries out production stages for other firms—are examined on wage differentials between skilled and unskilled workers using Thailand's establishment‐level data. The estimates based on a translog production function indicate that outsourcing provision augments productivity of both skilled and unskilled labor and contributes positively to wage inequality. The model predicts that a 1% increase in outsourcing provision leads to a rise in wage differentials by nearly 2.5%. The robustness check further reveals that the impacts of services provision on wage inequality are more pronounced than those of materials provision. These results highlight the importance of outsourcing provision as a new explanation of the widening skilled–unskilled wage gap in developing countries which typically emerge as a hub of outsourcing provision.