Age-differentiated minimum wages in developing countries

The fact that minimum wages seem especially binding for young workers has led some countries to adopt age-differentiated minimum wages. We develop a dynamic competitive two-sector labor market model where workers with heterogeneous initial skills gain productivity through experience. We compare two equally binding schemes of single and age-differentiated minimum wages, and find that although differentiated minimum wages result in a more equal distribution of income, such a scheme creates a more unequal distribution of wealth by forcing less skilled workers to remain longer in the uncovered sector. We also show that relaxing minimum wage solely for young workers reduces youth unemployment but harms the less skilled ones.     

Continuing Vocational Training Forms and Establishment Productivity in Germany

Abstract. This paper provides evidence of the productivity effects of different continuing vocational training forms in Germany. Using the waves 1997–2001 of the IAB establishment panel, it is found that formal external courses have the largest positive impact on productivity. Formal internal courses and quality circles have a smaller positive impact. Self‐induced learning, participation at seminars and talks and job rotation do not enhance productivity while training on the job has a negative productivity impact. Establishments with an inefficient production structure decide to offer training in order to boost productivity. This paper also shows that taking into account selectivity of the training decision, unobserved time‐invariant heterogeneity, human resource practices, as well as establishment and employee characteristics has an important impact on the measurement results.     

Does Raising the Minimum Wage Help the Poor?*

What is the impact of raising the minimum wage on family incomes? Using data from the 1994–1995 to 2002–2003 Survey of Income and Housing, the characteristics of low-wage workers are analysed. Those who earn near-minimum wages are disproportionately female, unmarried and young, without postschool qualifications and overseas born. About one-third of near-minimum-wage workers are the sole worker in their household. Due to low labour force participation rates in the poorest households, minimum-wage workers are most likely to be in middle-income households. Under plausible parameters for the effect of minimum wages on hourly wages and employment, it appears unlikely that raising the minimum wage will significantly lower family income inequality.     

Permanent versus transitory wage differentials and the inequality-hours hypothesis

This paper disentangles the effect of inequality in permanent and transitory wages on hours worked by, first, estimating the two components for Swedish industries and, second, using the resulting estimates as explanatory variables in an hours-worked equation. Consistent with Bell and Freeman’s (2001) inequality-hours hypothesis, permanent wage differentials are found to have a positive effect on individuals’ hours of work while transitory wage differentials have no effect. However, the analysis also shows that, in estimated hours-worked equations, inequality in observed wages is potentially a good approximation for inequality in permanent wages.     

Work and Wage Dynamics around Childbirth

In this paper, we investigate how the wage processes of women who are well established in the labour market are affected by having children. We estimate a flexible fixed‐effects wage regression model extended by post‐childbirth fixed effects. We use register data on West Germany, and we exploit the expansionary family policy during the late 1980s and 1990s for identification. On their return to work after childbirth, the wages of mothers drop by 3–5.7 per cent per year of leave. We find negative selection back to full‐time work after childbirth. We discuss the policy implications regarding statistical discrimination and the results concerning the family gap.     

Oligopsony and the distribution of wages

We propose a simple model of wage dispersion arising from oligopsonistic competition in the labor market. Our model has workers who are equally able but who have heterogeneous preferences for non-wage characteristics, while employers have heterogeneous productivity characteristics. We completely and explicitly solve for the equilibrium wage distribution and show that “inside” and “outside” forces interact in wage determination. This interaction generates spillover effects of minimum wages in a manner which is consistent with the empirical evidence.     

The impact of minimum wages on youth employment in Portugal

On January 1, 1987, the legal minimum wage for workers aged 18 and 19 in Portugal was raised by 49.3%. This shock is used as a “natural experiment” to evaluate the impact of the minimum wage change on teenagers’ employment. The method is to compare, based on firm-level microdata, the employment growth of 18-19-year-old workers with employment growth of older workers. The main findings are that the increase in the minimum wage significantly reduced employment of 18 and olds, but increased employment of 20- olds.     

Establishment size and task-specific wages: Evidence from historical contract data

This study examines whether task-specific jobs are rewarded differently across establishments of different sizes and whether these rewards vary across distinct technologies. We found that the aggregate premium estimates on the impact of size on wages conceal significant differences between tasks and technologies and that these differences reflect unobserved individual heterogeneity. The role of self-selection of more productive workers into larger establishments is particularly substantial in the case of abstract tasks.     

Fair wages survive multiple sources of income inequality

When an employee in a gift exchange game earns significantly less than the employer, the source of employer income does not affect effort choices. However, to induce one unit of effort, the employer has to pay higher wages than in a game without payoff inequality.     

Monopolistic wages or efficient contracts?

Using a representative sample of medium and large firms, this paper explores the process of employment and wage bill determination in the Bulgarian manufacturing sector. The results suggest that, during 1997–2001, the labour market behaviour of these firms was consistent with weakly efficient contracting and employment elasticity with respect to both sales and wages similar to that of the fastest‐reforming Central and Eastern Europe economies. Although a case study using data on sell‐off deals by the Privatization Agency suggests that the largest firms selected for cash privatization may have exhibited higher preference for wage enhancement than employment protection, the results do not bring into question the efficient performance of the post‐crisis labour market in Bulgaria. Importantly, the study rejects the hypothesis that either persistent government stakes or mass privatization may have led to efficiency deterioration.     

Technology and outsourcing: An explanation to the rising wage gap

The recent phenomenon of widening skilled–unskilled wage gap in both North and South has been either explained by a technological change or by increasing trade or globalization. The paper provides a new explanation and emphasizes that it is neither technology nor trade alone but both that have contributed to the widening wage inequality. It argues, using a two-country occupational choice model, that any technological improvement in North results in a rise in the skilled–unskilled wage gap in North via an increase in the productivity of skilled labor followed by a rise in the same in South via trade or the outsourcing activities of the northern firms. The extent of outsourcing or the number of northern firms that outsource jobs to South is endogenously determined in the model. The paper also analyzes some major economic impacts of such a technological upgradation in North on the southern economy.     

The impact of wages on job search in a transition economy - evidence with data from Eastern Germany

This study is concerned with the impact of wages on job search decisions in Eastern Germany immediately after reunification and in later periods. Several concepts measuring wage effects are used. The results of bivariate probit estimates with incomplete classification for a global and local job search show that the wage level had stronger effects on the former than on the latter job search decision directly after the collapse of the Berlin Wall. The degree of satisfaction with current income and the earnings capacities were irrelevant for the search decision. Low-paid East German workers had a higher propensity to search for a new job in the old Länder than others. This is contrary to the misleading result of isolated estimates about the job search in Western Germany. In the subsequent periods the situation has changed. The difference of earnings capacities between Eastern and Western Germany, specific East German wage premiums and intraregional wage inequality affect the decision to search for a new job in the west.For helpful comments I thank Michael Burda, Knut Gerlach, Robert A. Hart, Stefan Niermann, Liz Regan and two referees.     

The Dynamics of Poverty and the Promotion of Transition from Non‐Regular to Regular Employment in Japan: Economic Effects of Minimum Wage Revision and Job Training Support

Comparison between Japan and other advanced countries shows that the relative poverty rate is high in Japan, and that many of the poor households are those with a non‐regular worker. As for mobility between income classes, the proportion of households remaining in the poor class for a long period of time in Japan is close to the average for EU countries. The panel estimation of its effect on wages shows that the raising of the minimum wage is statistically significantly associated with an increase in wages of non‐regular workers, in particular, female, but does not seem to decrease employment. The result shows that for male non‐regular workers, firm‐provided training promotes their transition to regular employment, and that for female non‐regular workers, occupational training promotes their transition to regular employment at different firms.     

The effects of implicit contracts on wages: Evidence from the Japanese labor market

This paper tests whether wages in Japan’s labor market are determined by current or past labor market conditions. The empirical results are consistent with a model suggesting that labor market mobility may be limited and costly in Japan for men.     

Winners and losers: a micro-level analysis of international outsourcing and wages

Abstract.  Our paper investigates the link between international outsourcing and wages utilizing a large household panel and combining it with industry-level information on industries' outsourcing activities from input-output tables. This approach avoids problems such as aggregation bias, potential endogeneity bias, and poor skill definitions that commonly hamper industry-level studies. We find that outsourcing has had a marked impact on wages. Applying two alternative skill classifications, we find evidence that a 1 percentage point increase in outsourcing reduced the wage for workers in the lowest skill categories by up to 1.5%, while it increased wages for high-skilled workers by up to 2.6%. This result is robust to a number of different specifications.     

The Covariance Structure of East and West German Incomes and its Implications for the Persistence of Poverty and Inequality

Abstract. Based on data from the German Socio-Economic Panel (GSOEP), this paper analyzes the dynamics of equivalent income in East and West Germany in the years following reunification. Special emphasis is given to the separation of permanent and transitory components, the persistence of transitory shocks and their implications for the persistence of poverty and inequality. The results suggest that in West Germany, between 52 and 69 per cent of cross-sectional income inequality was permanent, and that poor individuals stayed in poverty for two years on average. In East Germany, the share of the permanent component in overall income inequality rose continuously from 20 per cent in 1990 to 72 per cent in 1998, reaching a level near the one that prevailed in West Germany during the same period. The rising importance of time-invariant components in East German incomes was also reflected in expected poverty durations which slightly increased from 1.47 years in 1990 to 1.67 years in 1998.     

Earnings Dynamics and Profile Heterogeneity: Estimates from Japanese Panel Data

The recent empirical work on earnings processes using US panel data finds that ignoring heterogeneity in earnings profiles among individuals leads to an upward bias in the autoregressive parameter of earnings shocks. It then argues that the existing assumptions in incomplete markets and heterogeneous‐agent models, almost all of which require highly persistent earnings shocks and no individual‐specific and group‐specific differences in earnings growth rates, may be inappropriate. This paper investigates the applicability of this US data‐based debate to other developed countries by using a panel of Japanese male earnings. The results indicate that it is possible to corroborate the recent US arguments, despite some differences in the estimates.     

Relative wages and trade-induced changes in technology

We develop a model where trade liberalization leads to skill-biased technological change, which in turn raises the relative return to skilled labor. When firms get access to a larger market, the relative profitability of different technologies changes in favor of the more skill-intensive technology. As the composition of firms changes to one with predominantly skill-intensive firms, the relative demand for skilled labor increases. This way, we establish a link between trade, technology and relative returns to skilled and unskilled labor.     

MNEs and wages: The role of productivity spillovers and imperfect labor markets

Disentangling the labor market implications of increased foreign capital flows remains important. This paper provides a unifying framework allowing to study the wage implications of multinational enterprise (MNE) activities, pointing to the importance of controlling for both labor market imperfections and productivity spillovers from foreign to local firms. Results show that increased MNE activities increase average wages in the local economy while contributing to a larger wage dispersion between the MNE and local firms. While the results pertaining to average wages depends heavily on the frictions in the labor market, how much the wage dispersion alters also depends on the extent of productivity spillovers from the MNEs to the local firms and the complementarity between domestic and foreign capital.     

The diffusion of computers and the distribution of wages

When the costs are decreasing workers adopt technology at the point where the costs equal the increased productivity. Output per worker increases immediately, while productivity benefits increase only gradually if costs continue to fall. As a result, workers in computer-adopting labor market groups experience an immediate fall in wages due to increased supply. On the other hand, adopting workers experience wage increases with some delay. This model explains why increased computer use does not immediately lead to higher wage inequality. More specifically, the results of the model are shown to be consistent with the question why within-group wage inequality among skilled workers as a result of computer technology adoption in the United States increased in the 1970s, while between-group wage inequality and within-group wage inequality among the unskilled did not start to increase until the 1980s. The model also predicts that the more compressed German wage structure leads to a lagged diffusion of computer technology along with smaller changes in wage inequality. Our empirical analysis suggests that this is consistent with the actual developments in Germany since the 1980s. Finally, the theoretical predictions seem to be of the right magnitude to explain the empirical quantities observed in the data.