Forecasting wage inequality

Wage inequality as a source of endogenous macroeconomic fluctuations

This thesis presents four self-contained essays that explore issues that are crucial in improving human well-being in a developing country: improving health, minimising child labour and reducing gender inequality. The analysis is focused on Bangladesh where the prevalence of child labour and gender differences in several domains is still widespread. The first essay aims to examine the gender wage gap along the entire wage distribution into an endowment effect and a discrimination effect, taking into account possible selection into full-time employment. Applying a new decomposition approach to the Bangladesh Labour Force Survey (LFS) datasets of 1999 and 2005, we find that women are paid less than men everywhere on the wage distribution and the gap is higher at the lower end of the distribution. Discrimination against women is the primary determinant of the wage gap. We also find that this gap has widened between 1999 and 2005. The second essay examines whether gender differences in tertiary enrolment rates can be explained by wage premiums in returns from secondary to tertiary education levels. Using LFS data, we find that wage premiums do not have any significant effect on the gender gap in tertiary enrolment rates. We also note that wage premiums in returns from secondary to tertiary education significantly influence tertiary enrolment rates for males but not for females, once additional variables are added. We offer evidence that part of the explanation for low female enrolment in tertiary education is attributable to demographic factors. The third essay investigates whether there is any trade-off between child labour hours and schooling. By drawing on the 2002 dataset of the Bangladesh National Child Labour Survey (NCLS), we find that working hours adversely affect child schooling from the very first hour of work. However, the marginal impact of child labour hours weakens when working hours increase; yet, working hours always negatively affect schooling when we use a non-parametric approach. We find that parents do not have identical preferences towards schooling decisions concerning boys and girls. Both mother and father show a significant preference for educating a female child. The same incentive effect is not found for a male child. These conclusions persist, even after allowing for sample selection in child labour. The fourth essay tests the effect of child labour on child health outcomes in Bangladesh. We use self-reported injury or illness due to work as a general measure of health status. Using NCLS data, we find that child labour is positively and significantly associated with the probability of being injured or becoming ill, once the endogenous relationship between these factors is accounted for. These findings remain robust when we consider child labour hours and restrict our analysis to rural areas. Moreover, the intensity of injury or illness is significantly higher in construction and manufacturing than in other sectors.

This paper examines the relationship between trade liberalization and wage inequality for 50 U.S. states during the period from 1999 to 2008. The Difference-in-Differences and fixed effects methods are employed to evaluate the effect of trade liberalization on wage inequality in the U.S. states. Empirical results reveal that trade liberalization and de-unionization do increase the wage inequality between skilled and unskilled workers. Evidence shows skill-biased technological change has no significant impact on rising wage inequality. As Difference-in-Differences estimation on time-series cross sectional data involves many years, the conventional standard errors often understate the standard deviation of the estimators. This paper employs the standard bootstrapping procedure and the clustering error procedure to correct the problem, and all sign patterns still hold.

링크를 클릭하시면, 이 보고서의 한국어 버전을 보실 수 있습니다: http://ssrn.com/abstract=2996314. This study attempts to explore the use of and underlying issues related to problem-solving skills, a vital competency in future jobs, and policy measures for improvement. An international comparison shows that Korean workers (aged 16-65) are fairly good at utilizing their skills but poor at applying those skills to solve problems at work. As problem solving is a key future competency, it is essential that the relevant skills are enhanced and actively utilized. However, insufficient education and training opportunities, poor communication and cooperation at work and a dual labor market structure could become obstacles. To enhance the use of problem-solving skills at work, concerted efforts at various levels are needed, for example changing the contents and methods of educational/training programs and establishing a skill-friendly labor market structure. Educational/training programs need to provide more field experiences and professional knowledge as well as soft skills including collaboration, compromise and communication Instead of a ‘flexible adjustment of the workforce’ through easy hiring and firing, labor reforms should be implemented though a ‘flexible adjustment of working conditions’ (i.e. wages and working hours) so that both employer and employee can accumulate and fully utilize the necessary skills in problem solving in a stable employment relationship.

This study focuses on the labour market dimensions of temporary migration by quantitatively exploring the relationship between temporary migration and wage inequality. Over recent decades, there has been a growing emphasis on migration management in shaping migration policies across the world, especially in the Anglophone settler societies. At the same time, temporary migration policies have been criticized for contributing to the creation of inequalities. This study investigates wage inequality among temporary migrants between 2010 and 2019 in Aotearoa New Zealand, a period when the number of people holding temporary visas more than doubled. Despite the increase in this population of temporary migrants, our analysis of administrative data has shown that the overall level of wage inequality of temporary migrants holding work visas declined between 2010 and 2019. The study uses the Shapley‐value decomposition approach to quantify the contributions of skills, nationality and migration status on wage inequality, factors that are associated with the migration system and the composition of migrants. Results suggest that skills and nationality were the key factors that have led to decrease wage inequality over the period. In contrast, migration status has a small countervailing effect on the decreases in wage inequality. Our analysis concludes that wage inequality is shaped by two factors in the case of temporary migration. The first is the migration system itself which sets different conditions for migrants in terms of skills and migration status, and the second is the composition of the migrant population.

This study empirically analyzes whether trade liberalization increases wage inequality between skilled and unskilled workers in Chile during 1974-2007. The findings show that tariff reductions contributed to increases in wage inequality by causing price reductions of unskilled labor-intensive goods protected with the highest tariffs prior to trade liberalization. In contrast, we found no evidence that new technologies embodied in capital and intermediate goods caused skill-biased technological change. In addition, this study shows that an increase in the relative supply of college equivalents did not contribute to wage equalization, while an increase in the minimum wages contributed to wage equalization during the period of the democratic governments.Apertura comercial y mejora salarial al trabajo calificado en ChileEn este trabajo se estudia empiricamente si la apertura comercial en Chile, durante el periodo 1974-2007, amplia la brecha salarial entre la mano de obra calificada y la no calificada. Se comprueba que la desgravacion arancelaria ha contribuido al aumento en la desigualdad salarial a traves de la caida de los precios de los bienes intensivos en mano de obra no calificada protegidos por altos aranceles antes de la apertura comercial. Por otro lado, no se observa ninguna evidencia de que las nuevas tecnologias representadas por la importacion de bienes de capital y de bienes intermedios hayan causado un cambio tecnologico sesgado a favor de la mano de obra calificada. Adicionalmente, los resultados muestran que el aumento en la oferta relativa de trabajadores con nivel universitario o su equivalente no ha contribuido a la reduccion de la brecha salarial; mientras que, en contraste con lo anterior, el incremento del salario minimo ha disminuido la desigualdad salarial durante el periodo de los gobiernos democraticos.

The increase in income in Brazil after 1995 and the recent reduction of income inequality has provoked the emergence of a social group, characterized as a new middle class. This process is related to the reduction of wage differentials by sex and color in labor markets and to the increase in average schooling. In this perspective, the aim of this article is to estimate the returns to education for male and female workers in Brazil in the period 1991/2010. We also intend to identify the contribution of investment in human capital to wage determination and, consequently, to socio-economic improvements. Quantile regressions are estimated, using microdata from Brazilian Demographic Census, to measure the returns of education and to identify the heterogeneity within this group of individuals. The main results of the models show that the returns to education are extremely high in Brazil and differ significantly along the wage distribution of the samples.

Dynamics of wage inequality over the prolonged economic transformation: The case of Vietnam

This paper analyzes the effects of changes in relative commodity prices on the distribution of income among factors of production in the context of two models of a simple, two-good economy. In the first model capital is treated as a specific factor in each industry, with labor mobile between industries. The assumption of specificity determines the direction of factor income changes, with magnitudes depending on substitutability between factors and on intensities of factor use within the two industries. In the second model, capital is viewed as a quasi-fixed factor. For the short run, this model is identical to the model first considered. For the long run, this model is identical to the Stolper-Samuelson model in which the direction and magnitude of factor income changes depend solely on relative factor intensities. The difference between the short-run and long-run determinants of changes in factor incomes gives rise to a conflict between factor owners' short-run and long-run interests.

Racial Discrimination and Trade Unionism

This study provides some of the first empirical evidence on the role of the labour market in determining individual-level wages and the consequent wage inequalities. Unlike traditional earnings equations that focus on human capital factors, this study follows recent wage theory, the Nash bargaining model, and finds that not only human capital but also the labour market are important factors in determining individual-level wages. Further, this study examines wage inequalities between urban-born workers and permanent rural migrant workers, who constitute a sizable part of all rural migrants in urban China but have been ignored in previous academic studies. Different from temporary rural migrants examined in previous studies, permanent rural migrants share the same citizenship rights and social welfare as urban-born workers. However, we still find that these permanent migrants (classified as talent, land, and ‘supported’ migrants) face disadvantages in acquiring high wages. Using a developed version of the two-fold Blinder–Oaxaca decomposition based on our theoretical model, we find that the wage inequalities between permanent rural migrants and urban residents are caused by both the workers’ education and labour market tightness, as well as the father’s employment status, housing prices, and other factors.

This paper analyzes a marked change in the evolution of the U.S. wage structure over the past fifteen years: divergent trends in upper-tail (90/50) and lower-tail (50/10) wage inequality. We document that wage inequality in the top half of distribution has displayed an unchecked and rather smooth secular rise for the last 25 years (since 1980). Wage inequality in the bottom half of the distribution also grew rapidly from 1979 to 1987, but it has ceased growing (and for some measures actually narrowed) since the late 1980s. Furthermore we find that occupational employment growth shifted from monotonically increasing in wages (education) in the 1980s to a pattern of more rapid growth in jobs at the top and bottom relative to the middles of the wage (education) distribution in the 1990s. We characterize these patterns as the "polarization" of the U.S. labor market, with employment polarizing into high-wage and low-wage jobs at the expense of middle-wage work. We show how a model of computerization in which computers most strongly complement the nonroutine (abstract) cognitive tasks of high-wage jobs, directly substitute for the routine tasks found in many traditional middle-wage jobs, and may have little direct impact on non-routine manual tasks in relatively low-wage jobs can help explain the observed polarization of the U.S. labor market.

This chapter examines cross-national differences in wage inequality rates. Distribution and growth, or equality and efficiency, are treated in a joint framework using data from 22 OECD countries around 2012. Wage inequality declines with the strength of equality-promoting institutions: union density, collective bargaining coverage, active labor market policies and general social spending. Economic wealth grows with efficiency-promoting institutions: business climate, innovation systems and labor market dynamics. Equality and efficiency are weakly inter-related, regarding both institutions and outcomes. Efficiency-institutions reduce employment gaps and skill dispersion - but not wage inequality - more than equality-institutions do, while equality-institutions raise economic output more than efficiency-institutions do. The weak correlation between equality and efficiency is the aggregate outcome of a positive (reinforcing) association among smaller countries and European countries, and a negative (trade-off) association among larger countries and non-European countries. Country (population) size and location are hence important contextual factors in determining wage inequality and growth.

There is a number of reasons, related both to the supply and demand side of the labour market, for which the wage premium resulting from employment in the public sector may vary spatially. This variation may affect the efficiency of the public services provision, private investment and regional labour market equilibria. The aim of this study is to assess the scale of the regional variation in the public-private wage differentials in Poland. In this paper we use the set of individual data from the survey on the structure of earnings by occupations in 2012 (SEO) carried out by CSO and propensity score matching method supplemented by quintile regression to analyse regional differences in public-private wage differentials. Results reveal that in Poland public sector premium is the highest in the regions at the lowest level of economic development. Moreover, it significantly varies between regions across wage distribution. The volatility of the premium may be to some extent explained by the structure of the regional economies and a development of the private sector in particular.

Trade liberalization and wages: Evidence from the closer economic partnership arrangement between mainland China and Hong Kong