Wages and Employment in China''s SOEs, 1980–1994: Corporatization, Market Development, and Insider Forces

Using firm-level panel data, we evaluate the importance of reform measures, market development, and insider forces in wage and employment determination in China's state sector. Initial output per worker is positively correlated with change in employment, and market wages are significantly associated with firm employment and wages in the later period. Both indicate development of the labor markets. Corporatization lowered wages by 11 to 15% and improved productivity by 6%. Finally, we find evidence that labor markets for managers and engineers have been developed more than those for production workers and that wage premiums for college graduates have increased dramatically since the late 1980's. J. Comp. Econom., December 1999, 27(4), pp. 702–729. IRIS, University of Maryland, College Park, Maryland 20742.     

The Effects of Market Liberalization on the Relative Earnings of Chinese Women

In this paper, we explore the effects of differences in labor market institutions and the degree of market liberalization on the size and composition of gender wages gaps in China's urban labor markets. We use enterprise-ownership type, enterprise age, and workers' methods of finding employment as proxies for the extent of market liberalization. We find both the size of the wage gaps and the proportion of the gap left unexplained by differences in observed characteristics largest in the most liberalized joint-venture sector and smallest in the least liberalized state sector. We next investigate the effects of differences in the wage structure on the gender wage gaps. We find that differences in the wage structure, in general, and the degree of wage dispersion, in particular, are extremely important in accounting for the larger wage gaps in the joint-venture and collective sectors relative to the state-owned sector. J. Comp. Econ., June 2002 30(4), pp. 709–731. Department of Economics, Bates College, Lewiston, Maine 04240. © 2002 Association for Comparative Economic Studies. Published by Elsevier Science (USA). All rights reserved.Journal of Economic Literature Classification Numbers: Numbers: J16, J31, J71, O15, O53, P23.     

Wage inequality and between-firm wage dispersion in the 1990s: A comparison of rural and urban enterprises in China

Using a worker–firm matched sample, this paper compares the changes of wage structures of urban and rural enterprises following public sector restructuring in China's manufacturing sector. While the wage responses of rural firms with respect to firm characteristics are found to have declined steadily, compensation of urban workers has become increasingly linked to their firms' ability to pay. Our analysis reveals that industrial restructuring has weakened the influence of institutional factors, such as market power, soft budget constraints, and insider influence, on the wage determination of rural firms but it has enhanced their impact on urban firms. Journal of Comparative Economics 33 (4) (2005) 664–687.     

Informality,public employment and employment protection in developing countries

This paper proposes an equilibrium matching model for developing countries’ labor markets where the interaction between public, formal private and informal private sectors are taken into account. Theoretical analysis shows that gains from reforms aiming at liberalizing formal labor markets can be annulled by shifts in the public sector employment and wage policies. Since the public sector accounts for a substantial share of employment in developing countries, this approach is crucial to understand the main labor market outcomes of such economies. Wages offered by the public sector increase the outside option value of the workers during the bargaining processes in the formal and informal sectors. It becomes more profitable for workers to search on-the-job, in order to move to these more attractive and more stable types of jobs. The public sector therefore acts as an additional tax for the formal private firms. Using data on workers’ flows from Egypt, we show empirically and theoretically that the liberalization of labor markets plays against informal employment by increasing the profitability, and hence job creations, of formal jobs. The latter effect is however dampened or even sometimes nullified by the increase of the offered wages in the public sector observed at the same time.     

Fertility Decisions and Gender Differences in Labor Turnover, Employment, and Wages

A striking observation of the U.S. and other labor markets is the weak position of women in terms of job attachment, employment, and earnings relative to men. We develop a model of fertility and labor market decisions to study the impact of fertility on gender differences in labor turnover, employment, and wages. In our framework, individuals search for jobs and accumulate general (experience) and specific (tenure) human capital when they work. They can also increase their wage by moving to a job of higher quality. Labor market decisions (e.g., job acceptance and job mobility) may differ across genders: females that give birth may decide to interrupt their labor market attachment in order to enjoy the value of staying at home with their children. The model economy is successfully calibrated to match aggregate statistics in terms of fertility, employment, and wages. We find that fertility decisions generate important gender differences in turnover rates, with long lasting effects in employment and wages. These differences in labor turnover account for almost all the U.S. gender wage gap that is attributed to labor market experience by Blau and Kahn (2000, Journal of Labor Economics15(1), 1–42). The model also implies a very small role of tenure capital in accounting for wage differences between males and females (gender gap), and between females with and without children (family gap). Journal of Economic Literature Classification Numbers: E24, J13, J21, J31.     

Grime and Punishment: Job Insecurity and Wage Arrears in the Russian Federation

Using information from two complementary household survey data sets, we show that the dominant form of labor market adjustment in the Russian transition process has been the delayed receipt of wages. More than half the work force is experiencing some form of disruption of their pay. Wage arrears are found across the private, state, and budgetary sectors. Workers in the metropolitan center are less affected by delayed and incomplete wage payments than are workers in the provinces. There is less evidence that individual characteristics contribute much toward the incidence of wage arrears, but the persistence of arrears is concentrated on a subset of the working population. We show that workers can only exercise the exit option of a job quit from a firm not paying wages in full or on time if the outside labor market is sufficiently dynamic. J. Comp. Econom., December 1999, 27(4), pp. 595–617. Heriot-Watt University, Edinburgh EH14 4AS, United Kingdom, IZA, Bonn, Germany, and WDI, Ann Arbor, Michigan; Centre for Economic Performance, London School of Economics, London WC2AE 2AE, England, and Royal Holloway College, University of London, Egham, TW20 1TQ, England; School of Information Management and Systems, University of California, 102 South Hall, Berkeley, California 94720-4600.     

Labor supply in urban China

Using labor supply responses from 10,560 urban Chinese workers, two-stage least squares estimations identify positive compensated wage effects and negative income effects that are, for the most part, statistically significant. The gross wage effects are mostly positive but they indicate relatively low uncompensated labor supply elasticities. The compensated wage effects are much larger; these may be important in assessing the labor market consequences of reform policies that monetize non-pecuniary benefits. The significance of labor supply responses depends on individual responsibilities within the family; the effects are largest for women and non-household heads. Journal of Comparative Economics 31 (4) (2003) 795–817.     

An Efficiency Enhancing Minimum Wage

We consider an economy with a tax on all labor earnings. We discover that a slightly binding minimum wage on one sector can enhance efficiency. The minimum wage attracts high‐reservation wage workers into the minimum‐wage sector. If the labor demand curve in the free sector is quite flat, the vast majority of workers displaced by the minimum wage find employment in the free sector, raising aggregate employment. This displacement of workers by the only slightly binding minimum wage has negligible effects on efficiency. So efficiency and tax revenue rise as the minimum wage pulls labor out of untaxed leisure, where too much of the labor force is lurking, into taxed work.     

Factor‐biased public infrastructure and wage inequality

This paper analyzes how factor‐biased public infrastructure affects the skilled–unskilled wage inequality. In the basic model with a full employment economy, we find that when the weighted dependence of skilled labor and capital in the urban skilled sector on public infrastructure is large enough relatively to that of unskilled labor and capital in the urban unskilled sector, the wage inequality will be expanded. We also discuss labor‐biased and capital‐biased public infrastructure in our framework, and find that the relative dependences of relevant labor or capital on public infrastructure are important determinants of wage inequality. In the extended models, we analyze separately the issue of wage inequality in the economy with unemployment and the totally open capital market, and find the results of the basic model almost still hold.     

Labour market effects of public capital stock: evidence for the Spanish private sector

This paper provides a new rationale for the positive effect of public capital stock on employment and wages. We show that higher levels of public capital reduce wages along the wage equation and enhance employment due to the resulting larger elasticity of labour demand with respect to wages. The estimation of a structural model for the Spanish private sector reveals that this wage channel is empirically relevant. We use the estimated parameters to simulate the recent incidence of the ratio of public to private capital stock on the private sector economic performance. We find (i) sizeable effects on employment, capital stock and gross domestic product, and (ii) that the wage channel is particularly important for employment.     

Labor Market Reform and the Changing Structure of Wage Determination in China's State Sector during the 1980s

China's market-oriented labor market reform has been in place for about one and a half decades. This study uses individual data for 1981 and 1987 to examine the success of the first half of the reform program. Success is evaluated by examining changes in the wage setting structure in the state-owned sector over the reform period. Have the market reforms stimulated worker incentives by increasing the returns to human capital acquisition? Has the wage structure altered to more closely mimic that of a market economy? In 1987, there is evidence of a structural change in the system of wage determination, with slightly increased rates of return to human capital. However, changes in industrial wage differentials appear to play the dominant role. It is argued that this may be due to labor market reforms, in particular the introduction of the profit related bonus scheme.J. Comp. Econom.,December 1997,25(3), pp. 403–421. Australian National University, Canberra, ACT0200, Australia and University of Tasmania, Hobart, Tasmania, Australia, and University of Aberdeen, Old Aberdeen, Scotland AB24 3QY.     

Search efficiency,wage dynamics and welfare

Advances in information technology have improved the job-search process in the labor market. We analyze the effects of this improvement by constructing a search-and-matching model with two sectors: a risky sector with firm-specific productivity shocks and a risk-free sector. The risky sector is characterized by a low level of commitment between employers and workers – either party can end the employment relationship. We show that a better job-search process generates more job matches in the risky sector, and this benefits workers by improving their outside options. The effect on employers is subtle: while it is easier to fill vacancies, workers become more expensive. At the same time, the ease of finding new workers makes it harder for employers to keep their wage promises to workers and increases wage volatility. Our paper contributes to the literature by offering a novel explanation for the observed rise in wage volatility.     

Against the Wind: Bargaining Recentralisation and Wage Inequality in Norway 1987–91

In the late 1980s, Norway's labour market experienced similar supply and demand shifts for skills to other countries', but unlike other OECD nations, Norway's wage setting system became more centralised. The pay distribution in Norway became more compressed at the bottom from 1987 to 1991, while low wage workers in other countries lost ground relatively. Using Norwegian microdata for 1987 and 1991, I found that changing labour market prices helped cause this wage compression. Further, the less educated had declining relative overall employment but increasing relative public sector employment, both possible labour market responses to the wage compression     

A theory of employment guarantees: Contestability,credibility and distributional concerns

Both raw intuition and past experience suggest that the success of an employment guarantee scheme (EGS) in safeguarding the welfare of the poor depends both on the wage it promises, and the ease with which any worker can gain access. An EGS is thus at once a wage guarantee and a rationing device. We chart the positive and normative limits of such an EGS as an efficiency improving and poverty alleviating policy reform in a canonical labor market setting. At its core, an EGS provides an aggregate, not just EGS, employment target. Given the target, the EGS wage and access can be fine-tuned to deliver outcomes ranging from a contestable labor market to a simple universal unemployment benefit. The credibility of any such target, however, is shown to be triggered endogenously by a host of factors: the distributional concerns of the planner, private sector productivity, the prevalence of market power and the need for public works. Paradoxically, the outcome with a planner who cares only about efficiency can be less efficient than the outcome with a planner whose social welfare function also gives weight to poverty!     

How fragile are male labor supply function estimates?

We estimate male wage and nonwage income effects using linear specifications spanning three techniques (ordinary least squares, fixed effects, and random effects), two wage measures (reported hourly wages and average hourly earnings), and sample stratification by pay scheme (salaried versus hourly paid). Our regressions encompass the one-period static and perfect-foresight life-cycle models. The static model implies exogenous random person-specific effects, a negative nonwage income coefficient, and a positive labor supply substitution effect. The life-cycle model implies endogenous individual-specific effects, a positive wage coefficient, and a zero nonwage income coefficient. Neither the one-period static nor the perfect-foresight life-cycle models are implied by the data for salaried workers while the static model is consistent with the data for hourly paid workers if income taxes are ignored.     

Efficiency Wages and Work Incentives in Urban and Rural China

This paper examines incentive-wage effects for production and for managerial/technical workers in both urban and rural Chinese nonagricultural enterprises. We report strong evidence of productivity-enhancing wage behavior among enterprises in all ownership categories. There is also evidence that firms paying higher efficiency wages experience less shirking among their employees. We find that the profit-maximizing potential of incentive-wage setting is not fully exploited, although there is weak evidence that joint ventures come closer to profit-maximizing behavior at this margin of wage/employment behavior than do collectives or state-owned enterprises. J. Comp. Econ., December 2001, 29(4), pp. 645–662. The Ohio State University, 1945 North High St., Columbus, OH 43210 and University of Hawaii at Manoa, Honolulu, Hawaii 96822. © 2001 Elsevier ScienceJournal of Economic Literature Classification Numbers: P23, J31, O15.     

The Welfare and Employment Effects of Centralized Public Sector Wage Bargaining

In many countries, the government pays almost identical nominal wages to workers living in regions with notable economic disparities. By developing a two‐region general equilibrium model with endogenous migration and search frictions in the labor market, I study the differences in terms of unemployment, real wages, and welfare between a regional wage bargaining process and a national one in the public sector. Adopting the latter makes residents in the poorer region better off and residents of the richer region worse off. Private sector employment decreases in the poorer region and it increases in the richer one. Under some conditions, the unemployment rate in the poorer region soars.     

DIRECTED SEARCH ON THE JOB AND THE WAGE LADDER*

We model a labor market where employed workers search on the job and firms direct workers' search using wage offers and employment probabilities. Applicants observe all offers and face a trade‐off between wage and employment probability. There is wage dispersion among workers, even though all workers and jobs are homogeneous. Equilibrium wages form a ladder, as workers optimally choose to climb the ladder one rung at a time. This is because low‐wage applicants are relatively more sensitive to employment probability than to wage and thus forgo the opportunity to apply for a high wage, with a lower chance of success.     

A Quantile Regression Analysis of Wages in Panama

Differences in the effects of worker characteristics on wages in Panama at different points of the conditional wage distribution are investigated. Public sector employment increases wages relatively more at lower quantiles. Within the public sector, employment in that sector increases wages of the median worker and reduces wage inequality. Presence of a labor union increases relatively more private sector wages at lower quantiles. Unions reduce wage inequality within the union private sector and increase average wages within that sector. In the public sector, the presence of a labor union increases wages of men at lower quantiles at a lower rate than in the private sector. Self-employment decreases wages at lower quantiles and increases wages at higher quantiles. Urban location affects wages in a U-shaped pattern as one moves from lower to higher quantiles. Rates of return to experience are higher for men at higher quantiles. Experience increases men's wage inequality.     

Long-run costs of piecemeal reform: Wage inequality and returns to education in Vietnam

In this paper, we examine changes in wage structure and wage premia during Vietnam’s transition from command to market economy. Relative to other work in this literature, our paper is unique in that we identify the policies that lead to such changes. By examining skill premium trends along the two dimensions of particular importance to the transition—state or non-state firms, and traded or non-traded industries—we are able to separate the contribution of external liberalization to wage growth and rising skill premia from that of domestic labor market reforms, and to examine potential interactions between the two types of reform. The results point to the high cost of incomplete reform in Vietnam. Capital market segmentation creates a two-track market for skills, in which state sector workers earn high salaries while non-state workers face lower demand and lower compensation. Growth is reduced directly by diminished allocative efficiency and reduced incentives to acquire education, and indirectly by higher wage inequality and rents for workers with access to state jobs.