Wage increases, wage convergence, and the Lewis turning point in China

We examine the wage trends of ordinary workers and the wage convergence between unskilled and skilled workers in China. First, we find that wages in all non-agricultural sectors, wages of migrant workers, and wages of hired workers in the agricultural sector have increased dramatically since 2003. Second, through comparing wage differentials between migrant and urban resident workers and between heterogeneous education groups within migrant workers, and by investigating the changes in the contribution of the returns to education to wage differentials, we find that the wages of unskilled and skilled workers have converged. Both the increasing wage trends and wage convergence are interpreted as evidence supporting the hypothesis that China has passed what can be called the Lewis turning point in the industrial sector. We conclude that the sustainability of economic growth in China requires an upgrading of labor market institutions to accommodate the merging of the rural and urban labor forces.     

Upstreamness,exports, and wage inequality: Evidence from Chinese manufacturing data

In this paper we investigate within-firm wage inequality across heterogeneous industries that hold different positions in the domestic value chain, and across heterogeneous firms that have different exposure to trade. We find that the wage inequality problem is more severe in upstream industries than in downstream ones, and among firms with greater exposure to trade (i.e., larger export share of sales). Our findings support both classic and new new trade theories on wage inequality. In downstream industries where Chinese firms are typically engaged in processing and assembly work with intensive use of unskilled labor, trade leads to less wage inequality within firms. However, trade also introduces pro-competitive effects which usually benefit exporters and their skilled labor. The results hold after various checks and controls for robustness.     

Foreign direct investment, intellectual property rights, and wage inequality in China

This article incorporates foreign direct investment (FDI) and product differentiation in a general equilibrium trade model. The analysis shows that freer trade and FDI will upgrade China's technology, improve its skills of labor, and increase the competitiveness of local firms in the international market. At the same time, the relative wage of skilled labor to unskilled labor will rise. The size of this rise will be affected by the degree of protection for intellectual property rights. These theoretical results are consistent with empirical evidence. The analysis provides insights in coordinating policies on FDI, labor market reform, and intellectual property rights protection.     

Monetary policy, central bank objectives, and social welfare with strategic wage setting

The paper examines the implications of strategic wage-settingbehaviour by an inflation-averse monopoly union for the appropriatespecification of central bank objectives. Our principal findingsare as follows. First, the optimal setting of the parametersof the central bank's objective function differ in a significantway according to the relative timing of monetary policy andwage determination. Second, the ability of the central bankto precommit to a particular setting of monetary policy doesnot confer any welfare benefits. Third, we find little supportin this context for the notion that placing monetary policyin the hands of a conservative central bank will improve socialwelfare.     

Negishi–Solow efficiency wages, unemployment insurance and dynamic deterministic indeterminacy

This paper introduces efficiency wages designed to provide workers with incentives to make appropriate effort levels, and involuntary unemployment, along the pioneering lines of Negishi (1979) , Solow (1979) and Shapiro and Stiglitz (1984) , in a dynamic model involving heterogeneous agents and financial constraints as in Woodford (1986) and Grandmont et al. (1998) . Effort varies continuously while there is unemployment insurance funded out of taxation of labor incomes. Increasing unemployment insurance is beneficial to employment along the deterministic stationary state, and can even in some cases lead to a Pareto welfare improvement for all agents, through general equilibrium effects, by generating higher individual real labour incomes, hence larger consumptions of employed and unemployed workers, and thus higher production. In contrast, the local (in)determinacy properties of the stationary state are opposite to those obtained in the competitive specification of the model: local determinacy (indeterminacy) occurs for elasticities of capital-efficient labor substitution lower (larger) than a quite small bound. Increasing unemployment insurance is more likely to lead to local indeterminacy and, therefore, to generate dynamic inefficiencies due to the corresponding expectations coordination failures.