Knowledge Spillovers and Wage Inequality: An Empirical Analysis of Dutch Manufacturing

The introduction of new technologies and technical change is associated mainly with high‐skilled and high‐wage workers. In addition, many studies have found a positive correlation between the introduction of new technologies and technical change and skill upgrading. In these studies no attention has been paid to spillovers from one sector to the other. In this paper we not only use measures of technical change but also knowledge spillovers to explain wage inequality in Dutch manufacturing in the period 1986–95. Using this more elaborate measure of technical change, our findings are twofold. First, we confirm that workers employed in knowledge‐intensive manufacturing sectors receive a higher wage than workers in less knowledge‐intensive sectors. Secondly, the wages paid to high‐skilled workers relative to low‐skilled workers in knowledge‐intensive sectors are higher than those in less knowledge‐intensive sectors. However, the coefficients using the elaborate measure of technological advancement are much lower and sometimes even insignificant. This suggests a premium for high‐skilled labour in sectors both applying and developing technology. But the wage premium is highest in technology‐developing sectors, as suggested by the measures used in previous studies.     

Higher Education Levels,Firms’ Outside Options and the Wage Structure

Abstract. We analyze the consequences of an increase in the supply of highly educated workers on relative and real wages in a search model where wages are set by Nash bargaining. A key insight is that an increase in the average education level exerts a negative externality on wages through its positive externality on the firms’ outside option. As a consequence, the real wage of all workers decreases in the short run. Since this decline is more pronounced for less educated workers, wage inequality increases. In the long‐run a better educated work force induces firms to invest more in physical capital. Wage inequality and real wages of highly educated workers increase while real wages of less educated workers may decrease. These results are consistent with the US experience in the 1970s and 1980s. Based upon differences in legal employment protection we also provide an explanation for the diverging evolution of real and relative wages in Continental Europe.     

THE JOINT DESIGN OF UNEMPLOYMENT INSURANCE AND EMPLOYMENT PROTECTION: A FIRST PASS

Unemployment insurance and employment protection are typically discussed and studied in isolation. In this paper, we argue that they are tightly linked, and we focus on their joint optimal design in a simple model, with risk‐averse workers, risk‐neutral firms, and random shocks to productivity. We show that, in the “first best,”unemployment insurance comes with employment protection—in the form of layoff taxes; indeed, optimality requires that layoff taxes be equal to unemployment benefits. We then explore the implications of four broad categories of deviations from first best: limits on insurance, limits on layoff taxes, ex post wage bargaining, and ex ante heterogeneity of firms or workers. We show how the design must be modified in each case. Finally, we draw out the implications of our analysis for current policy debates and reform proposals, from the financing of unemployment insurance, to the respective roles of severance payments and unemployment benefits.     

The Role of Profit Sharing in Dual Labour Markets with Flexible Outsourcing

We combine profit sharing for high‐skilled workers and outsourcing of low‐skilled tasks in a partly imperfect dual domestic labour market, which means that only low‐skilled labour is represented by a labour union. In that framework we analyse how the implementation of profit sharing for high‐skilled workers influences the amount of outsourcing and the labour market outcome for low‐skilled worker. By doing this, we use some specific assumptions, e.g. exponentially increasing outsourcing costs or the wage for low‐skilled workers will be determined by a union whereas the wage for high‐skilled workers is given. Assuming that low‐skilled labour and outsourcing are interchangeable we show that profit sharing has a positive effect on the wage for low‐skilled workers and helps to decrease wage dispersion. However, under these circumstances, profit sharing enhances outsourcing. Concerning the employment effects for high‐ and low‐skilled workers, we show that there is an employment reducing effect due to higher wages for low‐skilled work, which can be offset by higher productivity of highly skilled workers, as the domestic labour inputs complement each other.     

Discrimination and Resistance to Low‐skilled Immigration

Abstract. This paper shows that the immigration of some low‐skilled workers can be of advantage for low‐skilled natives when the host economy suffers from unemployment due to the presence of trade unions and an unemployment insurance scheme. This benefit arises if trade unions have appropriate bargaining power and preferences for members’ income, labor market discrimination against immigrants is strong enough and the unemployment tax rate is low.     

Occupational Upgrading and the Business Cycle

Many economics theories suggest that the assignment of workers to occupations changes over the business cycle: expansions allow workers to upgrade to occupations that pay higher wages and require more skill. This paper provides some empirical evidence from the USA that such upgrading does occur and that, as predicted, it has greater effects on less‐skilled individuals. Furthermore, the skill composition of new hires changes over the business cycle, even within occupations. Consistent with a job competition model, the education levels of new hires within occupations are higher when the unemployment rate is high and this effect is more pronounced in lower‐paying occupations. The changes in assignment imply that low‐skilled individuals suffer most from recessions in terms of occupation quality and unemployment. The results are consistent with employers responding to a greater supply of educated workers by increasing hiring standards, and so imply that the social return to education may be lower than the private return. However, the results are also consistent with more neo‐classical models of the labor market.     

Equilibrium Wage‐Tenure Contracts

In this study we consider a labor market matching model where firms post wage‐tenure contracts and workers, both employed and unemployed, search for new job opportunities. Given workers are risk averse, we establish there is a unique equilibrium in the environment considered. Although firms in the market make different offers in equilibrium, all post a wage‐tenure contract that implies a worker's wage increases smoothly with tenure at the firm. As firms make different offers, there is job turnover, as employed workers move jobs as the opportunity arises. This implies the increase in a worker's wage can be due to job‐to‐job movements as well as wage‐tenure effects. Further, there is a nondegenerate equilibrium distribution of initial wage offers that is differentiable on its support except for a mass point at the lowest initial wage. We also show that relevant characteristics of the equilibrium can be written as explicit functions of preferences and the other market parameters.     

The Impact of Mega‐Catastrophes on Insurers: An Exposure‐Based Analysis of the U.S. Homeowners’ Insurance Market

Insurance is a key risk‐sharing mechanism that protects citizens and governments from the losses caused by natural catastrophes. Given the increase in the frequency and intensity of natural catastrophes over recent years, this article analyzes the performance effects of mega‐catastrophes for U.S. insurance firms using a measure of market expectations. Specifically, we analyze the share price losses of insurance firms in response to catastrophe events to ascertain whether mega‐catastrophes significantly damage the performance of insurers and whether different types of mega‐catastrophes have different impacts. The main message from our analysis is that the impact of mega‐catastrophes on insurers has not been too damaging. While the exact impact of catastrophes depends on the nature of the event and the degree of competition within the relevant insurance market (less competition allows insurers to recoup catastrophe losses through adjustments to premiums), our overall results suggest that U.S. insurance firms can adequately manage the risks and costs of mega‐catastrophes. From a public policy perspective, our results show that insurance provides a robust means of sharing catastrophe losses to help reduce the financial consequences of a catastrophe event.     

Skill Complementarities and Migration Decisions

This paper offers an explanation of the high mobility of skilled workers based on human capital complementarities. If the skill premium is increasing in the average level of human capital of a location, and there exist fixed migration costs, in equilibrium the more skilled the workers are, the stronger the economic incentives to migrate towards the richest regions will be. Moreover, endogenously generated differences in productivity due to migration affect occupational choices and regional specialization. Empirical evidence consistent with the proposed explanation is provided using data on Italian regions. It emerges that, even after controlling for economic conditions, a high population share of individuals who completed college or high‐school in a region seems to be a relevant pull factor for the most educated migrants. In contrast, the importance of this variable, which measures the average level of human capital of a location, drops when unskilled migrants are considered. Finally, the effects of migration on the evolution of regional disparities are taken into account.     

DO FINANCIAL INCENTIVES AFFECT FIRMS’ DEMAND FOR DISABLED WORKERS?

A number of OECD countries aim to encourage work integration of disabled persons using quota policies. For instance, Austrian firms must provide at least one job to a disabled worker per 25 nondisabled workers and are subject to a tax if they do not. This “threshold design” provides causal estimates of the noncompliance tax on disabled employment if firms do not manipulate nondisabled employment; a lower and upper bound on the causal effect can be constructed if they do. Results indicate that firms with 25 nondisabled workers employ about 0.04 (or 12%) more disabled workers than without the tax; firms do manipulate employment of nondisabled workers but the lower bound on the employment effect of the quota remains positive; employment effects are stronger in low‐wage firms than in high‐wage firms; and firms subject to the quota of two disabled workers or more hire 0.08 more disabled workers per additional quota job. Moreover, increasing the noncompliance tax increases excess disabled employment, whereas paying a bonus to overcomplying firms slightly dampens the employment effects of the tax.     

The Skilled Wage Premium and the Growth of Small Firms in UK Manufacturing

We document the role of small firms in explaining the growth of the skilled/unskilled wage premium in UK manufacturing over the 1980s. Our major findings are (i) the share of manufacturing employment in small firms' (0–99) employees has risen by 35 percent over this period; (ii) small firms pay more unequal wages than do large firms: the non-manual/manual wage premium is 1.53 in small firms and 1.50 in firms of over 1,500 workers; (iii) the growth in small firms over the period explains about 20 percent of the rise in the skilled/unskilled wage premium.     

Wage Bargaining with On‐the‐Job Search: Theory and Evidence

Most applications of Nash bargaining over wages ignore between‐employer competition for labor services and attribute all of the workers' rent to their bargaining power. In this paper, we write and estimate an equilibrium model with strategic wage bargaining and on‐the‐job search and use it to take another look at the determinants of wages in France. There are three essential determinants of wages in our model: productivity, competition between employers resulting from on‐the‐job search, and the workers' bargaining power. We find that between‐firm competition matters a lot in the determination of wages, because it is quantitatively more important than wage bargaining à la Nash in raising wages above the workers' “reservation wages,” defined as out‐of‐work income. In particular, we detect no significant bargaining power for intermediate‐ and low‐skilled workers, and a modestly positive bargaining power for high‐skilled workers.     

Human Capital Accumulation,Social Mobility and Migrations

This paper studies the effects of migrations on growth and income distribution when social mobility is imperfect. Workers migrate in response to differences in expected wages between home and a foreign country, but their choice depends also whether they qualified themselves as skilled workers by accumulating human capital or not. Such an activity has a cost, which depends on each agent’s family background: sons of skilled workers have lower human capital accumulation costs. The effects of labour migrations on per capita income depend only on the degree of social mobility: if there is a difference in the cost of accumulating human capital for the sons of educated and non-educated people, migrations reduce total earnings of unskilled workers in the receiving country, and increase those of skilled workers.     

Educational Inequality

Abstract. This paper develops a theoretical model of the inequality in wages and salaries associated with differences in years of schooling (educational inequality, for short). Our model assumes that in the long run individual decisions to become more educated equalize the lifetime earnings of more educated workers and comparable less educated workers. Given this assumption, our model implies that innovations that increase the relative demand for more educated labor, and which cause short‐run increases in educational inequality, in the long run induce offsetting increases in the relative supply of more educated labor. But our model also has the novel implication that innovations that increase differences between the wages and salaries received by workers with the same years of education who are more or less able (ability premiums, for short) cause a smaller fraction of workers to choose to become more educated. Consequently, innovations that increase ability premiums in the long run also cause educational inequality to be larger than otherwise. In applying our theory to recent changes in educational inequality in the USA, we suggest that, to the extent that innovations that increase ability premiums are contributing to educational inequality, the increases in educational inequality during the 1980s and 1990s are unlikely to be reversed soon.     

What Survey Data Reveal about Price and Wage Rigidity in Portugal

This paper exploits the information collected from a survey conducted on a sample of Portuguese firms to study the patterns of firms’ price and wage adjustments and the extent of nominal price and wage rigidities. The evidence shows that the frequency of price changes varies substantially across sectors and depends on the intensity of competition, the share of labor costs and firms’ price reviewing behavior. The results also suggest that the constraint imposed by the presence of downward nominal wage rigidity is less important in firms where the fraction of permanent and high‐skilled workers is lower and the share of flexible pay components is higher.     

GOVERNMENT SPENDING COMPOSITION,TECHNICAL CHANGE,AND WAGE INEQUALITY

In this paper we argue that government spending played a significant role in stimulating the wave of innovation that hit the U.S. economy in the late 1970s and in the 1980s, as well as the simultaneous increase in inequality and in education attainments. Since the late 1970s U.S. policymakers began targeting commercial innovations more directly and explicitly. We focus on the shift in the composition of public demand toward high‐tech goods, which, by increasing the market‐size of innovative firms, functions as a de facto innovation policy tool. We build a quality‐ladders non‐scale growth model with heterogeneous industries and endogenous supply of skills, and show that an increase in the technological content of public spending stimulates R&D, raises the wage of skilled workers, and, at the same time, stimulates human capital accumulation. A calibrated version of the model suggests that government policy explains between 12% and 15% of the observed increase in wage inequality in the period 1976–1991. (JEL: E62, J31, O33, O41)     

Does Immigration Raise Blue and White Collar Wages of Natives? The Case of Italy

This paper analyses both theoretically and empirically the effects of immigration on the wage rate of native workers. There is rare evidence in empirical literature that immigration generates a fall in the wages of manual workers. By hypothesizing an economic system where advanced firms buy an intermediate good from traditional firms, which employ manual workers in both clean and dirty tasks, the latter being more disliked by native workers, we present a theoretical model that justifies these results. We conclude that native skilled wages always increase whereas native unskilled wages can both increase or decrease with immigration. An empirical analysis of the Italian labour market follows, showing that native workers' wages always rise with immigration.     

Employer Attractiveness in Latin America: The Association Among Foreignness,Internationalization and Talent Recruitment

Rapid economic development is provoking a skilled talent shortage in Latin America, causing firms to compete intensely for scarce talent (Manpower Group, 2011). While foreign-headquartered firms may bear a “liability of foreignness” (Zaheer, 1995), the question remains whether this alleged liability extends to attracting workers in the Latin American context. We propose an interactionist model grounded on person–organization fit and marginalization theories. Our model, which distinguishes between foreignness and internationalization, argues that they interact with marginalization variables to impact employer attractiveness. Our multi-level analysis of 76,191 individual evaluations of 80 firms within five Latin American countries supported hypotheses that members of marginalized groups based on gender, education, and income were relatively more attracted to foreign headquartered and more international firms. Our findings contribute to an emerging body of evidence suggesting that the impacts of foreignness and internationalization are not necessarily monolithic across all contexts.     

Wage Dispersion and Equilibrium Search Models: Some Evidence from Italy

This paper provides a structural estimation of an equilibrium search model with on‐the‐job search and heterogeneity in firms' productivities using a sample of Italian male workers. Results indicate that arrival rates of offers for workers are higher when unemployed than when employed and firms exploit their monopsony power when setting wages. As a result, workers earn far less than their marginal product. The model is then used to study regional labour market differentials in Italy. Wide variation in frictional transition parameters across areas helps to explain persistent unemployment and wage differentials.     

Managing lean capabilities through flexible workforce development: a process and framework

Many firms today are employing temporary contractual workers in order to help them to stay lean and flexible. The benefit of this approach is that the process of layoff is much easier. Thus, an emerging issue arises here, on how can firms manage and train temporary workers effectively? The core of lean adoption is through people, to have workers buy into the ideas and be part of the overall initiative. There is very little guidance available on how to deal with contractual workers who have less motivation and commitment to the firm given that they are only employed on a temporary basis. This article proposes a framework and process to assist firms in managing and training temporary workers to improve the efficiency and effectiveness of the implementation of lean improvement initiatives.