Comparative advantage and the welfare effects of uniform wage policies

This paper analyzes the theoretical impact of a commonly cited union goal — the elimination or reduction of wage differentials within occupations. By dropping the usual assumption of homogeneous labor, we show how, and under what market conditions, workers will receive rents due to individual comparative advantage. In competitive labor markets a union-imposed uniform wage may lower the earnings of workers holding a productive advantage, causing a reduction in employment and a welfare loss of comparative advantage rents. The implications of a strict uniform wage rule imply that unions may be forced to adapt their wage policy to allow more productive workers to receive wage differentials. This consideration helps explain some common trade union institutions.     

EFFICIENCY WAGE MODELS OF UNEMPLOYMENT: A SECOND VIEW

Efficiency wage models, in which firms find it profitable to pay wages above workers' reservation wages, provide a promising explanation for unemployment and interindustry wage differentials. One criticism of such models is they imply firms should sell jobs by requiring up-front bonds from new workers. However, only some efficiency wage models imply this. Moreover, firms might not require bonds for many reasons. We show that moral hazard and adverse selection models together explain many labor market phenomena. The efficiency wage model conforms well to empirical finding, but certain anomalies suggest the need to consider rent-sharing models.     

EFFICIENCY WAGES AND SUBJECTIVE PERFORMANCE PAY

This paper studies optimal relational contracts in motivating workers in a market setting. We find that labor markets with higher turnover costs will use more subjective performance pay and less efficiency wages and that in those markets, the total wage payment is lower and the equilibrium employment level is higher. Surprisingly, under certain conditions, an increase in turnover costs leads to higher social welfare. Incorporating workers' search costs, we show that wages are procyclical in booms and are either rigid or countercyclical during recessions. The predictions of the model are consistent with some empirical evidence. ( JEL D82, J33, J41, J63)     

WORKER EFFORT DECISIONS AND EFFICIENT GENDER—SPECIFIC WAGE—TENURE PROFILES

Despite theoretical arguments that predict the opposite, empirical estimates of workers' returns to tenure tend to be greater for female than for male workers. This paper develops an agency model of wage contracts to explain this empirical finding. If male and female workers differ only in the expected length of their working lives, efficient wage-tenure profiles are steeper for women than men as a direct result of their shorter working life. This result implies that returns to tenure for women and men will become comparable as women's and men's labor force attachments converge.     

Discrimination on nonwage margins: safety in the West Virginia coal industry, 1906-1925

Most discrimination studies analyze wage differentials. This paper more stringently examines the market's ability to limit the impact of discrimination. It tests for safety discrimination in the absence of piece-rate wage differentials in a turn-of-the-century labor market unconstrained by antidiscrimination law and extensive regulation. A new method, comparisons of ethnic fatality-experience profiles, captures the impact of the workers' experience on their ability to avoid danger, as well as racial differences in exposure to danger. The results are consistent with the hypothesis that blacks were not victims of safety discrimination in the labor market.     

WAGE SECRECY AS A SOCIAL CONVENTION

Despite the general belie that a free flow of information enhances efficiency, social convention appears to call for secrecy regarding individuals' wages. This paper provides an explanation for this convention. We suggest that the role of wage secrecy is to reduce effective labor mobility, and thereby enhance the feasibility of risk-shifting contracts. Wage secrecy may yield a mix of mobility and risk shifting that is superior both to a spot market for labor and to a social convention that binds workers to their employers.     

Labor market adjustments in the unionized contract construction industry

The unionized construction labor market reaches equilibrium by means of three adjustment mechanisms: wage changes, changes in the quality of workers hired, and the migration of workers in and out of the market. The relative importance of the three mechanisms in local labor markets depends on laws and institutional rules. This paper examines some of the important institutional rules and presents a model of market clearning where wage adjustments are infrequent.     

Minimum Wages in a Segmented Labor Market: Evidence from South Africa

The segmented labor market model describes the impacts of minimum wages on covered and uncovered sectors. This paper examines the impacts of an industry-specific minimum wage in South Africa, a state characterized by high unemployment, a robust union movement, and the presence of a large informal sector. Under the industry-specific wage law, formal agricultural and household workers are covered, while workers in other sectors are not. The unique aspect of this paper lies in the ability to compare the impacts of minimum wage legislation on formal covered, informal covered, formal uncovered, and informal uncovered workers. This natural experiment allows us to test whether industry-specific minimum wage legislation leads to higher wages, whether wage increases are restricted solely to covered formal sectors or if there are spillover effects, and whether such legislation manifests in disemployment effects. We find evidence of higher wages yet disemployment among black workers in formal markets. In informal markets we find no employment effects, but higher wages in formal markets appear to have spilled over into informal markets in covered sectors.     

Labor Markets and the Process of Income Attainment in the Multimedia Age

Abstract  This paper examines several foreseeable scenarios about the effects of information technology on the labor market and the process of individual's income attainment. While I do not intend to exclude other factors, I argue that computer literacy and information literacy are two distinct but complimentary factors, and that they will be the two critical issues in determining the productive capacities of workers in the multimedia age. I view information literacy as a firm-specific skill, and argue that it will be the key factor in determining the production function of workers within the firm. Computer literacy is viewed as the endowment of information literacy skills. Workers with higher levels of computer literacy will be at an advantage at the time of labor market entry. Further, such workers are more likely to have higher rates of return on firm's investments in information literacy skills. thereby yielding higher productions. Based on the premise that information technology and labor are complementary components which should reveal an increase in the demand for higher skilled workers, I suggest that income differences are likely to widen along the lines of educational attainment and establishment-size. The "Implications" section (V) of the paper examines several issues for further research in this incipient field of sociology.     

LABOR MARKET DYNAMICS WITH SEARCH FRICTIONS AND FAIR WAGE CONSIDERATIONS

Fairness considerations in wage setting can improve the ability of the Diamond‐Mortensen‐Pissarides search and matching model to account for U.S. labor market dynamics. Firms' production is influenced by workers' effort input, which depends on whether workers consider the employment relation as fair. A typical worker's effort is determined in a comparison of individual current wage with wage norms, including the outside option, the individual past wage, and the wage level in the steady state. The fairness considerations in the search framework give rise to endogenous real wage rigidity, and realistic volatilities of unemployment, vacancies, and labor market tightness. (JEL E24, E32, J64)     

Do unions always decrease wage dispersion? The case of Brazilian manufacturing

The literature on the impact of unions on wages has established that unionized workers earn a wage premium when compared to their nonunion counterparts and that the dispersion of wages within the union sector is lower than in the nonunion sector. I examine the validity of these findings in the context of a developing country labor market and show that unionism does create a positive wage differential but that wage dispersion is greater in the union sector. These findings are explained by the greater variance in the characteristics of unionized workers, the vulnerability of nonunion workers to market conditions, and the structure of wage bargaining.     

The relative effect of unionization and interjurisdictional competition on municipal wages

This study analyzes the effect on municipal employee wages of interjurisdictional competition in municipal service markets. The impact of market conditions are analyzed utilizing a bureaucracy model of local governmental decision making. The study develops hypotheses concerning the degree of competition in this market, constructs empirical measures of competition, and investigates the relationship between competition and wage levels for three categories of municipal workers. The empirical results suggest that local market conditions may be as important a determinant of local wages as local labor market conditions, including union membership. Also, the wage effect of unionization appears to be greater in less competitive local government environments. Financial support from the Earhart Foundation is gratefully acknowledged. We would also like to thank Werner Hirsch, Roger Folsom, and Geoffrey Nunn for helpful comments.     

On-the-Job Search,Mismatch and Worker Heterogeneity

This paper empirically examines the search behavior of currently employed workers to understand changes in on-the-job search across different types of employed individuals and varying labor market conditions. Using data from the American Time Use Survey, we estimate the responsiveness of workers with varying levels of productivity and job-match quality to regional labor market conditions. We find that those workers who are less-productive, mismatched in their current position, and high-productivity, mismatched workers are more likely to engage in search than other workers. These results have implications for models built on job mismatch, as well as for models seeking to explain increasing inequality and wage dispersion.     

The labor market effects of minimum wage laws: A new perspective

Economists almost uniformly argue that minimum wage laws benefit some workers at the expense of other workers. This argument is implicitly founded on the assumption that money wages are the only form of labor compensation. Based on the more realistic assumption that labor is paid in many different ways, the analysis of this paper demonstrates that all laborers within a perfectly competitive labor market are adversely affected by minimum wages. Although employment opportunities are reduced by such laws, affected labor markets clear. Conventional analysis of the effect of minimum wages on monopsony markets is also upset by the model developed. The author is indebted to Rex Cottle, Benjamin Hawkins, Hugh Macaulay, Michael Maloney, Thomas Schaap, Gordon Tullock, Gene Uselton, and Karen Vaughn for helpful comments on earlier drafts of this paper.     

DO LABOR MARKETS PROVIDE ENOUGH SHORT-HOUR JOBS? AN ANALYSIS OF WORK HOURS AND WORK INCENTIVES

This paper examines the role that work incentives play in the determination of work hours. We use a conventional efficiency wage model to analyze how firms respond to worker preferences regarding wage-hours packages. In contrast to previous work, we study markets in which workers have heterogeneous preferences. In this context we demonstrate that job offers will specify both wages and work hours and many individuals will not be able to work their preferred number of hours. We show that the labor market equilibrium may be characterized by a less than optimal number of short-hour jobs.     

EFFICIENCY WAGES AND EQUILIBRIUM WAGES

We present a labor market model that allows as special cases a market paying equilibrium wages, one paying disequilibrium efficiency wages, and a market combining the two. Our analysis indicates that industrial wage differentials are not necessarily evidence of efficiency wages. Such differentials may be explained by differences across industries in labor performance standards or in the accuracy with which worker effort can be measured. We do find, however, that the relationship between wages and dismissals can be used to distinguish a market paying equilibrium wages from one paying efficiency wages.     

On the integration of labor markets: A definition and test of the radical — Segmentation hypothesis

The empirical results of this paper are indicative of overall labor market integration. Segmentation theories are not supported by the high covariability of wage rates supported by this test. If segmentation theories are to mean more than that relative wages differ among industries, proponents of such theories must argue that segmented markets are cut off from other markets and able to resist the forces of supply and demand. Indeed if labor unions are to be able to insulate workers from market forces they must also segment their markets. The results of this paper indicate that unions are not able to insulate their workers from market forces. We are grateful to William Boyes, Dennis Logue, John Bishop, Stephen E. Baldwin, William McEachern, Roger Sherman, and Robert Tollison for comments on earlier versions and to James Bennett and an unidentified referee for comments on this final version.     

Has the Youth Labor Market in Japan Changed? An Event History Analysis Approach

Abstract: This paper examines whether the Japanese youth labor market has become more unstable, particularly since the 1990s. To address this problem, I suggest that we consider the transition rate of job exit to be the benchmark of instability in the labor market and focus on workers' career histories until they reach the age of 34 years. This paper presents six hypotheses that explain the instability of the youth labor market as follows: the total increase in the job-exit transition rate, the higher risk of job exit for provisional workers, the increase in the number of provisional workers, the increasing transition rate for provisional workers and stable regular workers, the impact of firm size, and the impact of the collapse of the bubble economy. I present the summary statistics of job exit rates and the results of the Cox partial likelihood estimation models. A conspicuous phenomenon of the 1990s entailed an increasing number of provisional workers who ran a higher risk of job exits compared to regular workers. However, the job exit transition rates are generally stable. Moreover, the transition rates for regular female workers have decreased since the 1980s due to the increasing realization of gender equality in society. Although partial likelihood estimation states that firm size and the type of officer concerned (public/private) had significant effects on the transition rates, their effect did not intensify after the collapse of the bubble economy. In sum, the evidence that the Japanese youth labor market changed in the 1990s is limited.     

Municipal residency laws: Effects on police employment,compensation, and productivity

This paper offers an alternative model of the effects of residency laws in municipal labor markets. Unlike previous studies, the model assumes that public employee labor markets are characterized by conditions of excess supply and that public services are produced under noncompetitive conditions. The model also implies that productivity improvements increase rather than reduce labor demand, yielding different results with respect to the wage and employment effects of residency requirements. The non-clearing market model is tested using data on municipal police officers. The results are more compatible with the disequilibrium model than with models based on a competitive equilibrium.     

The Canadian temporary visa programme as an alternative to the European guest worker scheme

This article analyzes Canada's employment visa program, through which foreigners enter the Canadian labor market for relatively short time periods. It further demonstrates some major differences between this policy and the European guest worker scheme. Governments in Western Europe viewed guest workers' benefits as preventing wages and inflation from rising, allowing profits and investments to increase, and sustaining economic growth. A question to consider is whether guest workers' demands on social services, in relation to their tax and other contributions, exceed those of the indigenous population and thus reduce their profitability. Canada, in contrast, has avoided the need to provide services for the children of foreign workers or jobs for their spouses by limiting visa length to a maximum of 1 year. The majority of employment visa holders to Canada enter without dependents. Another difference is the far smaller scope of the Canadian program. Canada's employment visa program provides only about 0.5% of total employment, whereas guest workers in European countries may comprise up to 23% (Switzerland). The occupations of service and teaching account for the majority of workers included in the Canadian visa program, while manufacturing subsumes a large share of European guest workers. It is important to stress that, with relatively low levels for permanent immigration to Canada, the employment visa program rivals that flow as a yearly contributor to labor supply, indicating a need for closer attention to the evaluation of this policy.