Wage inequality

Although they point to the potential importance of SBTC in the Brit- ish context, Lindley and Machin do not consider the potential role played by PP in growing wage inequality. There is some evidence that annual bonuses have contributed to an increase in wage inequality at the top of the earnings distribution in the last decade or so, primarily as a result of a large bonus receipt by bankers, traders and other well- paid professionals in the Finance sector (Bell and Van Reenen, 2010, 2011, 2013). 1 These employees may be sharing in the substantial rents generated by a lack of competition in the sector. Alternatively, they may be bene fi ting from productivity “ scaling ” effects that accrue to highly productive employees when changes such as increased fi rm size and capital intensi fi cation “ scale up ” worker productivity, increas- ing returns to their employer. This is the type of effect identi fi ed by Gabaix and Landier (2008) and Kaplan (2012) in relation to “ superstars ” such as CEOs.

The purpose of our work is to provide an empirical investigation of the relationship between wage inequality and trade liberalization in Colombia using detailed micro level data from 1984-1998. In particular, we exploit detailed data on workers’ earnings, characteristics and industry affiliation from the Colombian National Household Survey (NHS) and link this information to industry-level tariff changes and trade exposure. The main advantage of focusing on Colombia is that Colombia, like other developing countries, had not participated in the tariff reducing rounds of the GATT, so that tariff levels were high prior to the reforms. Trade reform consisted primarily of drastic tariff reductions. 1 Tariffs are both well measured and unlike NTBs comparable across time. In addition, the period 1985-1994 includes multiple tariff reduction episodes that affected not only the average tariff, but also the structure of protection across industries. Changes in the structure of protection reflected the country’s commitment to economy-wide reforms that reduced tariff dispersion, and set tariff rates to levels comparable to those in developed countries. These rates were negotiated with the WTO. Policy makers had accordingly less room to cater to special lobby interests; from an individual industry’s perspective, the final tariff rates were exogenously predetermined.

fundamental problems permeate all studies of changes in the wage and occupational distributions. This dissertation applies two approaches to overcome these challenges. In the first chapter (with Tzuo-Hann Law), we take an assortative matching model with on-the-job search and use it understand what forces drove up wage inequality in Germany between the 1990s and 2000s. The model conceives of a worker's ability and a firm's productivity as one-dimensional, rankable indices, which we non-parametrically identify. With these productivity ranks, we identify production technology. The model fits wages almost as well as statistical decompositions that use more degrees of freedom. This model fit gives us confidence to make inference with the model. We find that changes in production technology and the equilibrium sorting patterns it induces account for the rise in wage dispersion. Search frictions had little impact on its rise over time. The approach in the first chapter works well to account for rising wage inequality. However, it misses out on another important change - the decline in traditionally middle-wage jobs or job polarization. In the second chapter, I present a multidimensional skills search model which accounts for changes in occupational wages, occupational employment shares, and the wage distribution at large. In contrast to the first chapter, this model takes a parametric approach but still reproduces numerous aspects of US cross sectional data observed from 1979 to 2010. The model indicates industry trends and technological progress account for the majority of these changes. Information and communications technology spurred demand for jobs requiring interpersonal and social skills in the 1990s. This development appears farther reaching than the automation of jobs concentrated in the manufacturing and construction sectors.

theory. The estimated elasticity of substitution of China is smaller than those of the other countries studied in previous research. It indicates that the effect of market potential, and therefore the agglomeration effect, is greater in China than in other countries. Thus, with the same increase of sub-regional market size, China may suffer more serious regional inequality problems. The estimation results also show that the estimated values of elasticity of substitution for the years after 1997 are smaller than those for the years before 1997. The reason could be that most small and middle-sized cities specialize in just a few industries with specific technology. Each city obtains strong market power in their specialized industries. But at the same time, each city loses its diversity of production. As a result, the elasticity of substitution on intermediate products decreases in these small and middle sized cities, which indicates a stronger market potential effect. This further accelerates the increase of wage difference between cities and the agglomeration of each industry into the city with the strongest technology and market power in that industry. Therefore, increasing small cities’ economic sizes and diversifying their industry composition may help decrease the wage inequality between cities in China. Au and Henderson (2002) also argue that the majority of Chinese cities should increase their economic size to reach the output per worker peaks. They further state that there could be large gains from increased agglomeration in both the rural industrial and urban sectors. However, my estimation shows that although increased agglomeration can increase each city’s wage level, it may also increase the wage gap between large and small cities.

Indeed, in some cases residual members of the non-emigrating factor may benefit more than the emigrating group affecting wage inequality in an unexpected manner. Thus, emigration of either skill type may unambiguously improve the relative wage of the non-emigrating workers. Following Marjit and Kar (2005) several papers have extended this emigration-wage inequality link and provided valuable insights. For example, Oladi and Beladi (2007) introduce non-traded goods in connection with emigration of skilled and unskilled workers from a small open economy and evaluate its impact on both source and host countries. In particular, they show that immigration of both skilled and

Over the last two decades Mexico has witnessed a significant increase in wage inequality, typically attributed to the increase in relative demand for skilled labor. Over this period the educational achievements and their distribution across the labor force have also changed substantially. In this paper we analyze the impact of changes in human capital on wage inequality in Mexico. We focus our analysis on decomposing (1) the level of inequality in any given year and (2) change in inequality over time, into observable (e.g. age, education, occupation, etc.) and unobservable differences across workers. The main findings of this paper are: unobservable factors (within group inequality) account for most of the inequality in any given year. Among the observable factors human capital emerges as the most important variables in explaining the level of, and changes in, inequality.

of the observed trends: increasing US wage inequality has been concentrated at the top of the distribution since about 1988-90, unlike the 1980s (see for example, Autor, Katz and Kearney, 2008, Lemieux, 2008), and trends elsewhere in the OECD have varied considerably, although most often with some increase in dispersion (see for example, the OECD’s Growing Unequal, 2008, Chapter 3). Furthermore, the complexities of the way technological change and the race between technology and education might operate have been increasingly recognised. Autor, Levy and Murnane (2003) and Goos and Manning (2007), for example, bring out that computerisation replacing “routine” (as opposed to unskilled) tasks could increase inequality towards the top but reduce it in the lower part of the distribution. Atkinson (2008) highlights that the dynamics of the “race” imply that a constantly rising demand for educated workers may lead not to a constantly rising wage premium, but to a stable differential, the size of which depends on the speed of the country’s response to the shortage of skilled workers. This means that countries facing the same external shocks may have different outcomes in terms of wage dispersion. In addition, the role of wage-setting institutions, and the minimum wage in particular, have received a great deal of attention (see for example, DiNardo, Fortin and Lemieux, 1996; Lee, 1999, Card and DiNardo, 2002). The fact that shifts in demand occur in different supply and institutional settings over time and across countries has to be incorporated into the analysis and explanation of observed trends. 2

Our analysis so far has abstracted from the contributions of labor market institutions, such as minimum wages and unions, to wage inequality. Changes in the minimum wage could potentially affect the skill premium by compressing the lower end of the wage distribution. However, while evidence suggests that the minimum wages are binding in Colombia (see Bell (1997)), changes in minimum wages are of secondary importance during our sample period in Colombia. The most significant increases in the minimum wage took place in the late 1970’s and early 1980’s (see Bell (1997), Table 2). The changes in the late 1980’s and 1990’s were in comparison small. Moreover, the minimum wage is set in Colombia at the national level, so that minimum wages do not vary by industry. As a result, changes in the minimum wage cannot explain the relationship between tariffs changes and changes in wage premium (or changes in informality) in our study. Note that any effects minimum wage changes may have had on industry wages (or probability of informal employment) through compositional channels, for example because some industries employ more unskilled workers than others, are already controlled for in our approach in section 5 and 6, since the first-stage regressions control for industry composition in each year, and allow the returns to various educational and professional categories to change from year to year.

When treating immigrants and natives as two separate groups, interesting differences arise: in all cases, the level of wage dispersion in the residual for natives decreases, but the trends do not change that much, suggesting that had immigration not occurred, the residual wage inequality of natives in both countries would have increased anyway, albeit at a slightly lower level. This description supports existing results; i.e., the presence of immigrants cannot be considered to be even partially responsible for the increasing level of residual wage inequality in both the US and the UK. In a similar vein to the recent interpretation of Card (2009), this suggests that immigration can be said to have contributed to the increase of inequality in the workforce, albeit for only a small share, and it has no effect on the inequality of native wages.

We investigate the effects of the drastic tariff reductions of the 1980s and 1990s in Colombia on the wage distribution. We identify three main channels through which the wage distribution was affected: increasing returns to college education, changes in industry wages that hurt sectors with initially lower wages and a higher fraction of unskilled workers, and shifts of the labor force towards the informal sector that typically pays lower wages and offers no benefits. Our results suggest that trade policy played a role in each of the above cases. The increase in the skill premium was primarily driven by skilled-biased technological change; however, our evidence suggests, that this change may have been in part motivated by the tariff reductions and the increased foreign competition to which the trade reform exposed domestic producers. With respect to industry wages, we find that wage premiums decreased by more in sectors that experienced larger tariff cuts. Finally, we find some evidence that the increase in the size of the informal sector documented towards the end of the 1990s is related to increased foreign competition – sectors with larger tariff cuts and more trade exposure, as measured by the size their imports, experience a greater increase in informality. Nevertheless, increasing returns to education, and changes in industry premiums and informality alone cannot fully explain the increase in wage inequality we observe over this period. This suggests that overall the effect of the trade reforms on the wage distribution may have been small.

Temporary workers make up a sizeable part of the labor force in many countries and a substantial literature addresses different aspects of this phenomenon. European debates have focused mainly on the employment effects of temporary contracts (Cahuc and Postel-Vinay 2002). Employment effects have been less of a concern in Korea; official unemployment rates have been consistently low, averaging 3.4% over the period from 1990 to 2012 with peaks of 7% during the East Asian crisis in 1998 and 3.7% in the recent recession. In contrast to these modest fluctuations in unemployment, wage inequality shows a dramatic increase from the mid-1990s (see Figure 1). The increase

I construct a set of dynamic macroeconomic models to analyze the effect of unskilled immi- gration on wage inequality. The immigrants or their descendants do not remain unskilled–over time they may approach or exceed the general level of educational attainment. In the baseline model, the economy’s capital supply is determined endogenously by the savings behavior of infinite-lived dynasties, and I also consider models in which the supply of capital is perfectly elastic, or exogenously determined. I derive a simple formula that determines the time dis- counted value of the skill premium enjoyed by college-educated workers following a change in the rate of immigration for unskilled workers, or a change in the degree or rate at which unskilled immigrants become skilled. I compare the calculations of the skill premiums to data from the U.S. Current Population Survey to determine the long-run effect of different immigrant groups on wage inequality in the United States.

According to the results, wage inequality fell during period with changes statistically sig- nificant for all countries. But what would have happened with inequality if the composition of the workforce by educational levels would not have changed? Our estimations suggest that the Gini coefficient among wage earners would have been lower than the observed in 2010 for Brazil, Mexico, and Argentina. This means that education upgrading for these countries had an un-equalizing quantity effect on wage inequality. So, a greater share of workers with higher levels of education tends to increase inequality. In the case of Colombia, no change was observed. An opposite composition effect on inequality was found in the case of written contract and health coverage. In fact, higher levels of inequality are reported for the two measures of job informality for all countries in their counterfactual scenarios. This means that both higher proportion of worker with written contract and with health coverage had equalizing effects on wage inequality. All in all, the effect of formally contracting for Brazil appears to be a little bit stronger than the effect of health coverage, while the contrary happens for Mexico, Colombia, and Argentina.

There are several articles that studied wage inequality in urban or rural China, regional inequality, and income inequality. Many of the articles studied the inequality in urban China using China Household Survey data by National Bureau Statistics of China. Even though this dataset is rich, the survey only covered people in urban areas. This is a significant shortcoming as China’s rural population is about 53 percent of total in 2009. Also, using the urban data precludes us from comparing the effects of trade liberalization on both urban and rural areas. To my knowledge, there are no articles that study the WTO’s effects on wage inequality in both urban and rural China. The object of this thesis is to use the household survey data in urban and rural China to estimate the effects of China’s accession to the WTO on wage inequality and separately analyze and compare effects in urban and rural areas.

Abstract: This paper sets up a new economic geography model with diminishing marginal returns and examines the effect of capital liberalization on industrial agglomeration and wage inequality. The simulation results indicate that for the country with strict capital controls, capital liberalization can help reduce wage difference between countries in both nominal and real terms. It is also shown that when both comparative advantage and agglomeration are in effect, low trading costs does not necessarily cause the catastrophic agglomeration in the country with the larger market as most other NEG models predict.

Our research complements previous studies on the impact of technological progress and organizational change on wage inequality, and attempts to add to this body of work by focusing more explicitly on the role of financial markets. Papers that study the role of tech- nology in causing the increased dispersion in wages often rely on the idea of skill-biased technological change - SBTC (Acemoglu, 1998; Krusell et al. 2000). The idea is that tech- nological progress over the recent decades has disproportionately improved the productivity of skilled workers. Aghion, Howitt and Violante (2002) argue that the introduction of com- puters, a general purpose technology, has raised the transferability of skills across different sectors of the economy. Better educated workers, who can adapt more easily, therefore com- mand a higher premium since the demand for their labor has increased across the economy. There indeed appears to be substantial empirical evidence of skill-bias in the computing and telecommunications technologies that have been implemented in advanced industrial coun- tries in recent times (Autor, Katz, and Krueger, 1998; Berman, Bound, and Machin, 1998; Machin and Van Reenen, 1998).

The signaling role could have important consequences on the dynamics of edu- cation, wages, and wage distribution when there exist intergenerational linkages in educational decisions. This paper examines the dynamic effects in an economy where education has the dual roles and some fraction of individuals is credit constrained from taking education. In particular, it investigates how the number of educated in- dividuals, the importance of the signaling value of education, and the wage inequality between educated and uneducated workers change over time in such economy, and compares the dynamics with those when education does not function as a signal. It also examines whether the signaling role leads to higher aggregate consumption or not in the long run.

Educational Qualifications and Wage Inequality: Evidence for Europe Budria, Santiago and Telhado-Pereira, Pedro.. Online at https://mpra.ub.uni-muenchen.de/91/ MPRA Paper No..[r]

Lastly, we investigate whether the implementation of austerity measures impacted on the probability of women to be employed in high-wage sectors. From the decomposition analysis presented in section 3.2 we learnt that sectorial employment segregation accounts, on average, for 13% of the unadjusted wage gap, hence a remarkable portion of gender wage disparities. Results reported in Table 4 (and A4 in he Appendix) refer to the estimation of equation 3 and employ as dependent variable the ordered categorical variable (ranging from 1 to 5) that identifies sectors with ascending average wage. Results confirm that women have a lower probability to be employed in high-pay sectors; in addition, they clearly suggest that the implementation of fiscal consolidation measures leads to a further decline of the chances of female workers to be employed in better-paid sectors. If we distinguish the nature of austerity measures/plans (column 3 and 4 of Table 4), the expenditure-based ones seem to exert a relatively more detrimental role on gender wage inequality, via sectorial employment segregation adverse to women. This outcome is soundly confirmed by the evidence presented in Table A4, which differs from Table 4 for the exclusion of job related control variables that might have captured some sectorial aspects. Further robustness checks have been carried out reducing the number of ordered sectors to three and increasing it to thirteen. Results, not displayed here but available upon request, univocally confirm that austerity further worsens the chances of women to be employed in high-paid sectors.

From the perspective of policy, policy makers in Vietnam are aware that the reforms have the potential of increasing wage inequality, especially through changes in the return to human capital. Developments in wage inequality over the entire period exam- ined suggest that wage growth has been inclusive and equalizing in the private sector. The maintenance of a minimum wage and its frequent revisions is probably a major fac- tor in shaping these developments. High inflation in recent years (2006 onwards) eroded the real minimum wage and this erosion may have contributed to the levelling off of the declining trend in wage inequality. Vietnam seems to be committed to inclu- sive growth and to continue to intervene with further revisions to the minimum wage. Indeed, in 2009 the minimum wage was revised to 690,000 VND (650,000 for the state sector), from May 2010 the minimum monthly wage in non-state local firms was again revised to 810,000 VND (730,000 for state-owned enterprises and 1.04 million VND in foreign invested firms), and from 2011 it was further revised to 1.05 million VND. 16 Table 8. Detailed decomposition* of change in the Gini in the private wage sector: