Do firms' political connections depress the union wage effect? Evidence from China

Our paper reconciles the debated literature on the role of the Chinese unions by exploring the heterogeneous effects of unionization on wages in firms with and without political connections. We utilize a survey of 1268 firms in 12 cities to verify our hypothesis that wages increase due to unionization, but this union wage effect is significantly depressed by firms' political connections. Through a detailed analysis of the mechanism behind the empirical results, we conclude that unions increase workers' wages by strengthening the bargaining power of workers, while this bargaining power can be weakened by firms' political connections. Our main conclusion is robust to a series of robustness checks. Moreover, the results from quantile regressions inform us that the union wage effect and the role of political connections may vary along with the firms' wage distribution. Our findings suggest that the solution to further increase wages for low-wage workers and reduce wage inequality is to make the labor union an independent organization which can freely bargain with firms in terms of workers' wages and benefits, rather than an agency subordinate to the government whose role can be affected by the government support and undermined largely by firms' political connections.     

German trade unions after unification — Third degree wage discriminating monopolists?

German Trade Unions After Unification — Third Degree Wage Discriminating Monopolists? — After unification, real wages in eastern Germany rose rapidly relative to labor productivity and despite high and rising levels of unemployment. This substantial and rapid increase in wages relative to western Germany is difficult to explain without recourse to models of union behavior and collective bargaining. This paper applies and extends such models and evaluates plausible explanations for recent wage developments in the ex-GDR.     

Inducing political action by workers

A firm aiming to influence a governmental policy may benefit from political action by its stakeholders, such as workers. This article studies the behavior of such a firm, showing that workers will have a greater incentive to engage in costly political activity against the governmental policy the greater their number and the higher the wage. The firm may, therefore, profit from paying above‐market wages and from hiring what might appear to be an inefficiently large number of workers. And because unions may overcome free‐rider problems of uncoordinated political effort, a firm may favor unionization, or be less opposed to unionization than it would otherwise be. The results of this article can also explain why firms may little reduce wages in a recession, and why the higher wages paid by unionized firms do not reduce survival rates of these firms.     

Economic geography and inequality in China: Did improved market access widen spatial wage differences?

New economic geography (NEG) models predict that costly transport and the spatial distribution of demand affect the profits firms can earn in different locations, leading to higher wages for workers employed in cities with better geographic access to markets. In light of the ongoing economic integration and market reforms that occurred in China after 1995, we use three waves of Chinese Household Income Project (CHIP) data to measure the extent to which the influence of market access on wages changed and affected wage dispersion across Chinese cities over the next 12 years. Employing the gravity-based method of Redding and Venables (2004) to calculate the market access available to firms located in each city, we test whether the elasticity of the wage with respect to local market access increased over time. We find that in all three years market access of the worker's location has a positive and significant influence on the wage. Consistent with extensive labor market reforms of the late 1990s, the estimated wage elasticity doubles between 1995 and 2002 and is stable thereafter. Our estimates indicate that wages of all workers become more responsive to market forces in a manner consistent with NEG predictions, both skilled and unskilled and those working for state as well as private enterprises. We also provide evidence that these results are not driven by omission of other forms of agglomeration or by selection bias. Estimated spatial differences in nominal wages are large: a worker moving from an inland location to the coast in 2007 would have doubled his or her nominal wage. Counterfactual analysis indicates that spatial differences in market access contribute to wage inequality, but less so over time.     

Appropriation,firm dynamics,and wage inequality

This paper examines the income distribution and welfare effects of appropriation activities in an economy. In the short run, with a given number of firms, appropriation can narrow wage inequality between skilled and unskilled labor when the capital resources accrued by appropriators are not large. However, wage inequality widens when the capital accrued is large. In the long run, with free entry and exit of firms, an increase in appropriation can cause firms to enter when the accrued capital is not large. This gives rise to a win–win outcome by raising the wages of skilled and unskilled labor. However, if accrued capital is large, firms exit and a lose–lose situation may occur in which skilled and unskilled wages are reduced.     

Effect of Korean trade union on wage discrimination between regular and irregular workers

Whether the dual labor market structure implied by employment type and unionization causes wage discrimination is an intriguing and relevant policy question in the context of South Korea. This study examines the effect of trade unions on wage discrimination against irregular workers by extracting and comparing the ratios of the discriminatory wage gap by employment type between unionized and non-unionized workplaces. As per the analysis, all generalized decomposition frameworks show that the presence of trade unions expands discrimination regardless of the employment type. In addition, the effects of unionization on the degree of discrimination differ by factors characterized by the dual labor market. The effects are statistically significantly greater for women, youth, service industries, and white-collar jobs.     

Regional impact of commuter wage taxes

This paper presents a model of interurban and intraurban location that is used to consider the impact of wage taxes on housing and labor markets in a metropolitan area. The focus of the paper is to examine the differences in the regional impact of commuter wage taxes (source-based wage taxes) and residents-only wage taxes (residence-based wage taxes). The model illustrates that suburban land rent and wages can be affected in equilibrium by central city policies and that the mix of public goods (that is, whether they benefit households or firms) as well as those who bear the burden of financing them has implications regarding land values and shifts in relative population and production. Understanding such linkages is important in the creation and analysis of regional economic policy.     

The effect of unemployment among union members on union wage contracts

Conclusions In this paper a simple modification of union behavior has been suggested. This modification endogenized union preferences by making them depend on the level of unemployment among union members. When placed in the context of a two-sector economy, with a unionized and nonunionized sector and stochastic demand conditions, the model generated realistic patterns of wage and employment outcomes. These outcomes were shown to be critically sensitive to the union's concern with employment versus high wages. To the extent that such concerns are established through organizations, labor market outcomes in economies with a high degree of unionization will depend on the pattern of institutional arrangements as well as underlying economic influences, such as the level of productivity, the level of aggregate demand, and the composition of aggregate demand.     

WAGES THROUGH BOOMS AND RECESSIONS: A CASE STUDY OF ZIMBABWE

This paper examines developments in the wage system in Zimbabwe. The analysis focuses on the wage formation process and wage differentials. The paper observes that real wages have been flexible and have fallen sharply. Wage inflexibility is thus ruled out as a cause of unemployment. The collapse of wages has given rise to non‐standard labour market practices as workers try to cushion themselves against rapid wage declines. Wages also exhibit wide gender, racial and occupational differentials. The paper also argues that a wage policy in Zimbabwe must be pillared on decentralised, coordinated and synchronised collective bargaining.     

Jobs with different wage determination mechanisms, social efficiency and unemployment

The purpose of this paper is to construct a theoretical framework for the labor market, which is composed of a variety of jobs with different wage determination mechanisms. We identify an equilibrium in which some firms post a wage and others bargain with workers. This paper shows that the proportion of firms adopting wage bargaining in a decentralized equilibrium is below the socially optimal level. We identify policies to increase this proportion and to improve social efficiency. Furthermore, we examine the impact of those policies on unemployment. The results of this study will determine the direction of employment policy on the labor market with various employment styles.     

Wages and wage policy: Australia in the Depression, 1924–34

The starting–point for this examination of the Australian wage–fixing system during the Great Depression is the recent conclusion by Gregory, Ho, and McDermott that the Commonwealth Court was ineffective in its attempt to impose a 10 per cent reduction in real wages. They argue that labour markets, centralized and decentralized, resisted the 10 per cent cut, so that wage policy played no part in the recovery from the Depression. By surveying the decisions and influence of the Commonwealth Court, and the wage–fixing institutions and wage outcomes in Victoria and New South Wales, this article concludes that the hypothesis of Gregory et al. cannot be supported. Contemporary views were closer to the mark.     

Increasing wage,mechanization, and agriculture production in China

As the population bonus disappeared, the wage rate has increased significantly since the early 2000s in China. Increasing wages have significantly affected export-oriented industries as well as agriculture. Mechanization is another factor affecting China's agriculture. This study shows the increasing wage and the mechanization have a negative impact on land area devoted to labor-intensive crops but a positive impact on land area devoted to labor-extensive crops. Based on nationally representative data, the empirical results conform well to the theoretical predictions.     

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.     

Capital market distortion,firm entry and wage inequality

Distortions in the capital market are notable in developing economies like China. By building up a dual production structure with oligopolistic competition in urban manufacturing, this paper investigates the distributional and welfare effects of capital market distortions. We find that in the short run, an increase in the capital market distortion in favor of urban firms can lower both the skilled and unskilled wages. However, in the long run, the preferential policy on reducing capital cost to the urban sector attracts new entry of firms, which can worsen the skilled-unskilled wage inequality in the economy. This firm-entry effect of the capital market distortion on wage inequality is empirically confirmed for China.     

Reciprocity information and wage personalization

This paper considers a modified principal-agent environment, where principals can use personalized offers based on agents' reciprocity-related information. With such information, principals can either impose stronger financial incentives or try to “trigger” agents' positive reciprocity by offering a higher fixed rate. Theory suggests that principals who believe in agents' reciprocity would personalize offers so that reciprocal agents increase their effort beyond the self-regarding benchmark. Using a lab experiment, we test the behavior of principals and agents. Our experimental market witnesses significant wage personalization when reciprocity information is available. However, agents' effort levels and principals' payoffs are lower under wage personalization, compared with the sessions where principals cannot personalize offers. Our structural analysis shows that, under wage personalization, agents expect higher fixed wages and reciprocate higher wages less. Information about agents' individual reciprocity is more correlated with the expected wages, rather than the strength of reciprocity toward higher or lower wages. Principals grant higher fixed wages to workers with lower wage expectations, but because principals cannot personalize offers effectively according to the strength of reciprocity, the performance of wage personalization is limited.     

A politicoeconomic model of wage inflation

Summary The paper employs a public choice perspective to develop a model of centralized union wage bargaining. The actors considered are political parties, employers' federations, voters, union officials and members of the rank and file, with the emphasis being put on the latter three. Control theory is used to analyze bargaining outcomes in a dynamic context. The theoretical consequences of the model, which stress the importance of political variables such as government ideology, preferences of the rank and file members, election dates and the degree of union centralization on wage inflation, are supported by West German data.Helpful comments from Chris Goodrich and an anonymous referee of this Journal are gratefully acknowledged.     

中间品进口多样化、企业创新与工资水平

基于2000-2006年中国制造业企业数据库以及进出口海关数据库的匹配数据引入企业创新机制效应检验中间品进口多样化的工资溢出效应。研究表明中间品进口多样化、企业创新均能显著提高企业的工资水平。进一步考察企业的出口状态、所有制结构及企业所属地区差异后发现中间品进口多样化对出口企业、外资企业以及东部地区企业的工资影响更为显著。分位数回归结果进一步显示中间品进口多样化及企业创新对工资分布高分位企业的工资影响更为显著。基于中介效应模型的传导机制检验，认为中间品进口多样化通过节约成本、提升生产率及企业创新影响中国制造业企业工资水平的利润共享机制存在。在控制成本效应及生产率效应两种机制之后，企业创新成为中间品进口多样化作用于企业工资的新机制。     

The case of labour time reduction without wage compensation: More or less employment?

Summary In this paper a model of a closed economy, including a market sector and a public sector, is presented to analyse the consequences of a reduction of labour time with and without wage compensation. It turns out that a policy of labour time reduction without wage compensation is a very strong instrument to improve production and employment, if the economy is characterized by the Keynesiandemand model. But if the economy is characterized by the neoclassicalsupply model, a relatively large drop in wages is necessary to prevent a policy of labour time reduction from causing a process of stagflation.     

Smoking and wage rates – Evidence from Japanese panel data

This paper analyzes smoking behavior and its effects on wage rate. It is widely known that smoking has negative health effects and to discourage the practice, governments frequently implement policies such as tax increases and restrictions on public smoking. To evaluate these policies, it is necessary to understand the economic benefits and costs of reducing the number of smokers. We conduct a panel data analysis while controlling for unobserved heterogeneity and show that smoking is not the main factor causing observed wage differentials between smokers and non-smokers in Japan.As for the relationship between smoking and wages, we find that male smokers receive lower hourly wages than male nonsmokers. Smoking behavior generally depends on environmental, congenital, or social factors. These factors, however, do not only affect smoking behavior but also the wages of these individuals. To isolate the effect of smoking on wages, we control for individual heterogeneity using panel data to verify the existence of such an effect.Using tax change as an instrumental variable in the fixed effects model and several robustness checks, the results show that smoking has no statistically significant effect on wage rate. This suggests that smoking does not directly affect wages; rather, unobserved individual heterogeneity (other factors influencing both smoking and wages) leads to wage differences between smokers and nonsmokers. Nevertheless, smoking can affect wages in the long run through health problems. The nine-year panel data used in this research, however, is insufficient to capture the long-term indirect health effects. Thus, future research should consider analyzing indirect health effects using panel data spread across a wider time frame.     

Trade,technology, and the labour market: impacts on wage inequality within countries

This paper focuses on the widening wage inequality between skilled and unskilled workers within countries and discusses whether trade and technology have contributed to this trend. The paper develops an analytical framework for wage inequality that traces the determinants and their relative roles in wage inequality in different stages of the development of trade theory, especially those considering new evidence after 2011. We find that technology plays a key role in the rise of wage inequality in most countries, while trade plays an increasingly crucial and more complex role in recent years. Skill supply institutions, such as education systems supplying skilled labour or unions participating in wage‐setting processes, suppress the rise of wage inequality in some countries. The paper further outlines the mechanisms through which trade affects wage inequality, including offshoring, firm heterogeneity, labour market frictions and global value chains. We find that trade has indirect effects on technology, which further enlarges the wage inequality among skills. The paper also discusses the policy implications of the impacts of trade and technology on wage inequality.