A spatial model of corporate tax incidence

Using a unique, self-compiled data-set on international tax rates, we explore the link between taxes and manufacturing wages for a panel of 66 countries over 25 years. We find, controlling for other macroeconomic variables, that wages are significantly responsive to corporate taxation. Higher corporate tax rates depress wages. Using spatial modelling techniques, we also find that tax characteristics of neighbouring countries, whether geographic or economic, have a significant effect on domestic wages. We test for, and reject, spatial autocorrelation in our model using a modification of the Moran-I test statistic that accounts for country-specific fixed effects in a panel data setting. Our article fits in with the new economic geography literature as well as the urban economics literature which attempt to explain the spatial distribution of wages.     

The labor market and corporate structure

We analyze the impact of labor demand and labor market regulations on the corporate structure of firms. Higher wages are associated with lower monitoring, irrespective of whether these high wages are caused by labor market regulations, unions or higher labor demand. We also find that the organization of firms has important macroeconomic implications. In particular, monitoring is a type of “rent-seeking” activity and the decentralized equilibrium spends excessive resources on monitoring. Labor market regulations that reduce monitoring by pushing wages up may increase net output or reduce it only by a small amount even though they reduce employment.     

Gift Exchange and the Business Cycle: The Fair Wage Strikes Back

We extend the benchmark real business cycle model amending technology for fair wage considerations. Effort depends on current, alternative, and past wages. Past wages are treated as the worker's past wages (personal norm) or as the past wages of the society (social norm). This last model reproduces the high variability of employment, the low variability of wages, and the low wage–employment correlation without requiring a second source of impulsions. Wages and employment dynamics are adequately captured when norms adjust slowly to the environment. Fair wages are thus useful to solve the business cycle puzzle when we allow for intertemporal wage comparisons. Journal of Economic Literature Classification Number: E24     

The role of supervisors in the determination of wages and wage gaps

This article considers labour market discrimination by supervisors as a potential contributor to racial and gender wage gaps. Empirical analysis reveals evidence that all workers, except Hispanic males, earn significantly higher hourly wages when working for a supervisor of the same race and sex as themselves. Furthermore, the results suggest that sex has a larger impact on wages than race for workers with white supervisors, while race has a larger impact on wages than sex for workers with minority supervisors. Based on past research, we theorize that the degree of labour discrimination workers face may also be dependent upon the location and size of the firm in which they are employed. However, decomposing the samples by firm location and size suggests that these two factors cannot adequately explain the observed matched supervisor–worker wage effects, which supports the notion that these wage effects are largely driven by factors other than supervisor discrimination.     

Corporate Tournaments, Human Capital Acquisition, and the Firm Size–Wage Relation

This paper provides a possible explanation for the empirically observed size–wage effect and inter-industry wage differences. It develops a model in which incentives for workers to accumulate general human capital are provided by corporate tournaments, where workers with the highest level of general human capital win promotions. Given that the prizes in such tournaments are determined by outside market conditions, the investment and the equilibrium wages depend on firm and industry characteristics. The model implies that workers in bigger firms and in more technology intensive and profitable firms and industries acquire more human capital and receive higher wages and benefits.     

General training by firms, apprentice contracts, and public policy

Workers will not pay for general on-the-job training if contracts are not enforceable. Firms may if there are mobility frictions. Private information about worker productivities, however, prevents workers who quit receiving their marginal products elsewhere. Their new employers then receive external benefits from their training. In this paper, training firms increase profits by offering apprenticeships which commit firms to high wages for those trainees retained on completion. At these high wages, only good workers are retained. This signals their productivity and reduces the external benefits if they subsequently quit. Regulation of apprenticeship length (a historically important feature) enhances efficiency. Appropriate subsidies enhance it further.     

Task-Based Segmentation of Rural Labour Contracts: Theory and Evidence

The paper examines the theoretical and empirical validity of task-based segmentation of rural labour contracts in seasonal agriculture. Regular labour is hired to perform tasks that are difficult to supervise for which casual labour is not incentive-compatible, and a regular wage above the reservation wage ensures no shirking in these tasks. It is argued that there is a hoarding cost of regular labour which is the cost when productivity is low during the slack season. This implies that minimization of supervision costs necessitates the employment of regular labour in certain tasks, but enhances hoarding cost. Results from the ICRISAT villages in India suggests that daily regular wages are lower than daily casual wages, adjusted by the probability of unemployment. Estimates of a tobit selection model suggest that (a) task characteristics are not significant even among the farms hiring regular labour, (b) larger employment-intensive farms tend to hire more regular labour irrespective of the choice of crop, and (c) there is a significant substitutability between regular and family labour. These results seem to question the very basis of task-based segmentation and strengthen the hoarding cost argument: farms hiring regular labour use it indiscriminately in both non-monitorable and monitorable tasks and, if possible, they may substitute family labour for regular labour with a view to minimizing hoarding cost.     

The Econometrics and Economics of the Employment Effects of Minimum Wages: Getting from Known Unknowns to Known Knowns

I discuss the econometrics and the economics of past research on the effects of minimum wages on employment in the United States. My intent is to try to identify key questions raised in the recent literature, and some from the earlier literature, which I think hold the most promise for understanding the conflicting evidence and arriving at a more definitive answer about the employment effects of minimum wages. My secondary goal is to discuss how we can narrow the range of uncertainty about the likely effects of the large minimum wage increases becoming more prevalent in the United States. I discuss some insights from both theory and past evidence that may be informative about the effects of high minimum wages, and try to emphasize what research can be done now and in the near future to provide useful evidence to policy‐makers on the results of the coming high minimum wage experiment, whether in the United States or in other countries.     

Skills,Tasks and the Scarcity of Talent in a Global Economy

The scarcity of talent is a tremendous challenge for firms in the globalized world. This paper investigates the role of labor market imperfection in open economies for the usage of talent in the production process of firms. For this purpose, I set up a heterogeneous firms model, where production consists of a continuum of tasks that differ in complexity. Firms hire low‐skilled and high‐skilled workers to perform these tasks. How firms assign workers to tasks depends on factor prices for the two skill types and the productivity advantage of high‐skilled workers in the performance of complex tasks. I study the firms’ assignment problem under two labor market regimes, which capture the polar cases of fully flexible wages and a binding minimum wage for low‐skilled workers. Since the minimum wage lowers the skill premium, it increases the range of tasks performed by high‐skilled workers, which enhances the stock of knowledge within firms to solve complex tasks and reduces the mass of active firms. In a setting with fully flexible wages trade does not affect the firm‐internal assignment of workers to tasks. On the contrary, if low‐skilled wages are fixed by a minimum wage, trade renders high‐skilled workers a scarce resource and reduces the range of tasks performed by this skill type with negative consequences for the human capital stock within firms. In this case, trade leads to higher per‐capita income for both skill types and thus to higher welfare in the open than in the closed economy, whereas – somewhat counter‐intuitive – inequality between the two skill types decreases, as more low‐skilled workers find employment in the production process.     

The Role of Expectation on Job Search and the Firm Size Effect on Wages

We formulate dynamic games which give a rationale to the firm size–wage effect that the sheer firm size increases wages. We postulate that past wages of large firms are known to new employees, while those of small firms are not. Large firms can credibly induce workers to expect high future wages and reduce turnover, while small firms have no choice but to be myopic and pay low wages. The equilibrium wage differential obtains under the same worker characteristics and production function. We provide empirical evidence that workers' expectations depend on firm size and affect wages as predicted by our model.     

The Gender Wage Gap in Offered,Observed, and Reservation Wages for Spain

The literature on the gender wage gap and wage discrimination has exclusively analyzed observed wage differences, ignoring inactive or unemployed individuals. In order to obtain a more complete overview of gender wage differences, this paper analyzed inactive or unemployed individuals in terms of offered and reservation wages in Spain in the years 1994, 2000, and 2006. The results show that the observed wages give a more positive perspective of the gender wage gap than offered ones. Furthermore, the existence of an important gender wage gap for reservation wages has been noted, which is possibly because women take charge of household and family caregiving tasks to a greater degree than men. The results show that Spanish women had higher reservation wages and lower offered wages than men, which explains their lower participation in the labor market.     

Computers,skills and wages

Computer technology is most prominently used by skilled, high-wage workers. This suggests that computer use requires skills to take full advantage of the possibilities, which are particularly present among relatively skilled workers. This article develops a simple technology adoption model showing that the decision to adopt computer technology depends on (i) the tasks to be performed, (ii) the level of skill or education and (iii) the level of wages. Applying this model to British data, it is shown that the effect of wages and particular tasks on computer adoption is larger than the effect of skills on adoption. The estimates suggest that in Britain computer use is likely to be a matter of cost efficiency and not so much of workers’ skills.     

Macroeconomic Implications of Changes in Corporate Tax Rates: A Review

Many countries have initiated structural reforms in corporate income tax (CIT) to attract investment and promote growth. There has been a continuous decline in CIT rates worldwide. It is expected that cuts in CIT rates may increase after-tax profits and encourage investment. A change in the CIT rate may also be shifted backward (by changing salaries and wages) and/or forward (by changing product prices). These are theoretical possibilities and may not have support from empirical evidence. In this paper we review empirical studies to assess the impact of CIT rate changes on the economy.     

Human resource management and productivity in the “trust game corporation”

Contemporary production activity is crucially determined by the performance of complex tasks with the characteristics of corporate trust games. In this paper, we outline a productivity paradox showing that, under reasonable conditions, the noncooperative solution, which yields a suboptimal firm output, is the equilibrium of corporate trust games when relational preferences are not sufficiently high. We show that tournaments and steeper pay for performance schemes may crowd out cooperation in the presence of players preferences for relational goods. These findings help to explain firm investment in workers’ relationships and the puzzle on the less than expected use of such schemes.     

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.     

Fiscal Effects of Minimum Wages: An Analysis for Germany

Abstract. Against the background of the current discussion of statutory minimum wages in Germany, this paper analyzes the potential employment and fiscal effects of such a policy. Based on estimated labor demand elasticities obtained from a structural labor demand model, the empirical results imply that minimum wages in Germany will be associated with significant employment losses among marginal and low- and semi-skilled full-time workers. Even though minimum wages will lead to increased public revenues from income taxes and social security benefits, they will result in a significant fiscal burden, due to increased unemployment benefits and decreased revenues from corporate taxes.     

Sharing the Burden? Empirical Evidence on Corporate Tax Incidence

This study investigates the direct incidence of the corporate income tax (CIT) through wage bargaining, using an industry‐region level panel dataset on all corporations in Germany over the period 1998–2006. For the first time we account for employment effects which result from tax‐induced wage changes. Workers share in reductions of the CIT burden; yet, the net effect of wage bargaining on the corporate wage bill, after an exogenous €1 decrease in the CIT burden, is as little as 19–28 cents. This is about half of the effect obtained in prior literature focussing on wages alone.     

The dynamics of wage determination in Romania

This article examines wage developments in Romania over the last 20 years, discusses the evolving role of government wage policy and structural labour market changes, and analyses the dynamics of the wage determination process. It finds that government wage policy has had a significant demonstration effect on private sector wages, driven mainly by policy decisions over the past few years. The article also finds strong causality from private sector wages to wages in state‐owned enterprises (SOEs) and government. No causality was found for changes in government wages to wages in SOEs or from SOE wages to private sector wages.     

Marriage, BMI, and wages: a double selection approach

Obesity rates have been rising over the past decade. As more people become obese, the social stigma of obesity may be reduced. Marriage has typically been used as a positive signal to employers. If obese individuals possess other characteristics that are valued in the labour market they may no longer face a wage penalty for their physical appearance. This paper investigates the relationship between marital status, body mass index (BMI), and wages by estimating a double selection model that controls for selection into the labour and marriage markets using waves 14 and 16 (2004 and 2006) of the British Household Panel Survey. Results suggest that unobserved characteristics related to marriage and labour market participation are causing an upward bias on the BMI coefficients. The BMI coefficient is positive and significant for married men only in the double selection model. The findings provide evidence that unobserved characteristics related to success in the marriage and labour market may influence the relationship between BMI and wages.     

EFFECTS OF IMMIGRANTS ON THE 1980–1990 U.S. WAGE EXPERIENCE

This paper questions the claim that U.S. immigration should be reduced because the economy can no longer absorb immigrants as it has in the past. Analysis of male hourly wages shows that the effect of immigration on wages did not change between 1980 and 1990. Further, immigration had no negative effects on wages in 1980 or 1990. These results suggest that the capacity of the labor market to absorb immigrants has not been reduced. Additional analysis shows that, controlling for personal characteristics, the hourly wages of the average native and immigrant worker in areas of high and medium immigration relative to areas of low immigration increased between 1980 and 1990. However, Latino immigrants are affected negatively by immigration.