SKILLED‐UNSKILLED WAGE INEQUALITY AND URBAN UNEMPLOYMENT

The impact of trade liberalization on the labor market in the North has drawn tremendous attention in the face of the growing skilled‐unskilled wage gap but in the South it has been somewhat neglected. One of the key structural differences between the North and the South is that the South experiences a pronounced rural‐urban migration in the presence of urban unemployment. We introduce this feature in the structure of a simple general equilibrium model to analyze the effects of trade liberalization and fragmentation on employment and the skilled‐unskilled wage differential in the South. In particular, we show that while fragmentation necessarily improves the unskilled wage and the skilled wage, more lucrative global opportunities for the skilled final product, in the absence of fragmentation, can reduce the rural wage and increase urban unemployment. The effect of fragmentation, ceteris paribus, on the skilled‐unskilled wage gap is sensitive to the degree of substitutability between land and unskilled labor. As such, fragmentation can magnify the increase in the skilled‐unskilled wage gap resulting from an improvement in the terms of trade. It is also shown that a technological progress in the intermediate goods sector increases the skilled‐unskilled wage gap and raises urban unemployment. (JEL F1, O1, F11, F12)     

IMMIGRATION,SKILL HETEROGENEITY,AND QUALIFICATION MISMATCH

We investigate the effects of U.S. immigration in a comprehensive search and matching framework that allows for skill heterogeneity, imperfect substitutability between skilled and unskilled inputs, different search cost between natives and immigrants, cross‐skill matching, and imperfect transferability of foreign human capital. When we simulate the effects of the U.S. immigration that took place between the years 2000 and 2009, we find that both skilled and unskilled natives, as well as skilled and unskilled immigrants, gain in terms of income and employment. We also investigate the effects of an improvement in the transferability of human capital across borders and find that, although it has some redistributive effects, overall it benefits both immigrants and natives. (JEL F22, J61, J64)     

TRADE,GEOGRAPHY AND THE SKILL PREMIUM IN U.S. MANUFACTURING

A number of studies have suggested that countries (or regions) with access to larger markets have higher wages. In this paper, we examine whether access to larger markets affects skilled and unskilled workers differently. We develop a model relating two key measures of market size, market and supplier access, to industry value added prices. We then estimate the effects of growth in these measures on factor returns in U.S. manufacturing industries between 1984 and 1996. We find that growth in these measures can explain around 5% of the rise in the skill premium over the sample period. (JEL F12, F16, L60)     

FINANCIAL DEVELOPMENT AND WAGE INEQUALITY: THEORY AND EVIDENCE

We argue that financial market development contributed to the rise in the skill premium and residual wage inequality in the United States since the 1980s. We present an endogenous growth model with imperfect credit markets and establish how improving the efficiency of these markets affects modes of production, innovation, and wage dispersion between skilled and unskilled workers. The experience of U.S. states following banking deregulation provides empirical support for our hypothesis. We find that wages of skilled workers increased by between 0.5% and 6.3% following deregulation while those of unskilled workers fell by between 3.5% and 8.7%. Similarly, residual (or within‐group) inequality increased; the 90–50 percentile ratio of residuals from a Mincerian wage regression and their standard deviation increased by 4.2% and 1.7%, respectively. (JEL E25, J31, G24)     

The Demand for Labor: An Analysis Using Matched Employer–Employee Data from the German LIAB. Will the High Unskilled Worker Own-Wage Elasticity Please Stand Up?

This paper uses matched employee–employer LIAB data to provide panel estimates of the structure of labor demand in western Germany, 1993–2002, distinguishing between highly skilled, skilled, and unskilled labor and between the manufacturing and service sectors. Reflecting current preoccupations, our demand analysis seeks also to accommodate the impact of technology and trade in addition to wages. The bottom-line interests are to provide elasticities of the demand for unskilled (and other) labor that should assist in short-run policy design and to identify the extent of skill biases or otherwise in trade and technology.

IMPORTED CAPITAL INPUT,ABSORPTIVE CAPACITY,AND FIRM PERFORMANCE: EVIDENCE FROM FIRM‐LEVEL DATA

Importing capital inputs has been recognized as a critical channel for technology transfer across countries. We examine whether and to what extent the productive impact of imported capital varies with firms' abilities to absorb new technologies using ordinary least squares, instrumental variable, and threshold regression estimators. We find that firms with higher absorptive capacity gain significantly more from importing foreign capital. Our results also suggest a threshold for such benefits. Furthermore, the productive contribution of skilled labor is significantly higher in firms that import foreign capital. Developing policies to augment absorptive capacity will help firms in developing countries to realize benefits associated with imported capital. (JEL F14, D24, L24, O33)     

FACTOR AUGMENTATION,FACTOR ELIMINATION,AND ECONOMIC GROWTH

Economic growth theory distinguishes between reproducible and nonreproducible factors of production. In traditional growth models based on factor‐augmenting technical change, perpetual economic growth requires that each essential nonreproducible factor, such as labor, be augmented by a reproducible factor, such as human capital. Recent models of factor‐eliminating technical change deliver perpetual growth by eliminating the nonreproducible factors. Heretofore, the literature has kept factor augmentation and factor elimination separate. We analyze a model with both. The model generalizes the traditional factor augmentation approach by relaxing the usual restriction that factor elimination is absent. We obtain the striking result that factor‐augmenting technical change is a misspecification when factor‐eliminating technical change is present. The result raises several questions about technical change and endogenous growth. (JEL O41, O31, O33)     

JOBLESS RECOVERIES: STAGNATION OR STRUCTURAL CHANGE?

Within the existing literature a number of competing explanations for jobless recoveries have emerged. On the one hand there is evidence of dynamic structural change including offshoring/globalization and technological advances that are resulting in the loss of middle‐skill (routine) employment. Other studies emphasize a less dynamic economy with slower growth, reduced labor market fluidity, a decline in startup activity, and even economic stagnation. This study exploits variation among U.S. states to assess the degree that stagnation and/or important structural changes in the economy contribute to the recent phenomenon of jobless recoveries. We find support for both the stagnation and structural change theories of jobless recoveries. On the stagnation side, we find evidence that lower startup rates are a significant predictor of jobless recoveries. We also find evidence that links dynamic structural change to the jobless recovery phenomenon. More specifically states experiencing a long‐run downward trend in the share of routine employment are more likely to experience a jobless recovery. Our results are consistent with the polarization theory where routine‐replacing technological advances permanently reduce demand for middle‐skill labor, thus contributing to jobless recoveries. (JEL E32, E24)     

MODELING INFORMALITY FORMALLY: HOUSEHOLDS AND FIRMS

Informality is widespread in most developing countries. In Latin America, 50% of salaried employees work informally. Three stylized facts characterize informality: (1) small firms tend to operate informally while large firms tend to operate formally; (2) unskilled workers tend to be informal while skilled ones have formal jobs; (3) ceteris paribus, secondary workers (a worker other than the household head) are less likely to operate formally than primary workers. We develop a model that accounts for all these facts. In our model, both heterogeneous firms and workers have preferences over the sector they operate and choose optimally whether to function formally or informally. There are two labor markets, one formal and the other informal, and both firms and workers act unconstrained in them. By contrast, a prominent feature of the preexisting literature is that workers' decisions play no role in determining the equilibrium of the economy. In our model, policies that reduce the supply of workers in the informal labor market at given wages will increase the level of formality in the economy. This has noteworthy implications for the design of social programs in developing countries. We also show that an increase in the participation of secondary workers would tend to raise the level of informality in the economy. (JEL J24, J33)     

De facto immigration enforcement,ICE raid awareness,and worker engagement

We explore whether fear of apprehension affects immigrants' labor market engagement by examining how Immigration and Customs Enforcement (ICE) removals due to immigration violations and increased awareness of immigration raids impact their labor market outcomes. We find that ICE deportations are associated with reductions in the labor force participation and employment of likely undocumented immigrants when compared to similarly skilled foreign-born US citizens. Effects are particularly strong among women, especially those with children, as well as in industries likely targeted by ICE raids. Controlling for perceived threats and de jure immigration policies has little impact on these results.     

LABOR'S SHARE,THE FIRM'S MARKET POWER,AND TOTAL FACTOR PRODUCTIVITY

We investigate the relationship between labor's share, firm's market power, and the elasticity of output with respect to labor input using an approach based on an unobserved components model. The approach yields time‐varying estimates of market power and the elasticity. Evidence on the market power of firms (which we find to be rising since 2000) gives a deeper understanding of movements in labor's share and the labor wedge. The generated values of the elasticity yield revised estimates of total factor productivity growth which is informative about the extent of the downward bias inherent in traditional estimates which use labor's share as a proxy for the elasticity. (JEL O47, C32, E25)     

INDUSTRIAL DYNAMICS AND THE NEOCLASSICAL GROWTH MODEL

This paper studies industry-level dynamics and demonstrates the ability of a modified neoclassical growth model to capture a range of empirical facts. The paper begins by using U.S. data to document skilled and unskilled labor trends within industry sector classifications as well as industry sector output trends. Using Current Population Survey data from 1968 to 2004, it is shown that the ratio of skilled workers to unskilled workers employed has risen in all industries. The absolute increase in this ratio was larger in the more skilled industries, while the growth rate was larger in the less skilled industries. Furthermore, using national income account data, it is shown that relatively high-skilled industries have accounted for an increasing share of output over time. A version of the neoclassical growth model is then constructed to match these observations. One important feature of this model is a structure that introduces new goods into the economy at each moment of time. The model is able to capture a rich set of labor market movements between sectors and between skill levels as well as changes in the relative output shares across industries, yet preserves many nice features of the neoclassical growth model. ( JEL E13, J20, 030)     

HOW DOES GLOBALIZATION AFFECT THE IMPLICIT TAX RATES ON LABOR INCOME,CAPITAL INCOME,AND CONSUMPTION IN THE EUROPEAN UNION?

This article analyzes the effects of globalization on implicit tax rates (ITRs) on labor income, capital income, and consumption in the EU15 and Central and Eastern European New Member States (CEE NMS). We find supportive evidence for an increase in the ITR on labor income in the EU15, but no effect on the ITR on capital income. There is evidence of convergence in terms of the ITR on consumption, as countries with higher than average ITR on consumption respond to globalization by decreasing their tax rates. There are important differences among the welfare regimes within the EU15. Social‐democratic countries have decreased the tax burden on capital, but increased that on labor due to globalization. Globalization exerts a pressure to increase taxes on labor income in the conservative and liberal regimes as well. Taxes on consumption decrease in response to globalization in the conservative and social‐democratic regimes. In the CEE NMS, there is no effect of globalization on the ITR on labor and capital income, but we find a negative impact on the ITR on consumption in the CEE NMS with higher than average ITR on consumption. (JEL H23, H24, H25, F19, F21)     

Educationally Channeled International Labor Mobility: Contemporary Student Migration from China to Japan

International education is an important channel of labor migration. Most commonly, this form of labor migration is considered as “brain drain,” represented by the retention of graduate students in science and engineering in the host labor market. This case study of contemporary Chinese student migration to Japan shows that international students have different credentials, interests, and motivations for migrating abroad, and consequently provide the host society both unskilled and skilled labor power. Moreover, Chinese students’ labor market practices as skilled labor migrants show their important roles in the economic globalization. Aside from scientific and engineering skills, Chinese students use their linguistic and cultural competencies to act as intermediaries between their host and home economies.     

NETWORKS AND SELECTION IN INTERNATIONAL MIGRATION TO SPAIN

We offer fresh evidence on the effect of migrant networks on two essential aspects of migration: (1) the total scale of migration and (2) the skill composition of migration. Our analysis is for the remarkable case of Spain, which experienced a full‐blown immigration boom from the mid‐1990s up to the Global Financial Crisis. To accommodate flexible substitution patterns across alternative migrant destinations, we use a three‐level nested multinomial logit model. We find a strong positive network effect on the scale of migration and a strong negative effect on the ratio of high‐skilled to low‐skilled migrants. Simplifying restrictions on the structure of cross‐destination substitutability are rejected by the data. (JEL F22, J61)     

PAYING MORE TO HIRE THE BEST? FOREIGN FIRMS,WAGES, AND WORKER MOBILITY

In the context of the debate on the labor‐market consequences of globalization, we adopt an original approach toward the identification of the wage differences between foreign and domestic firms: worker mobility. Using matched employer‐employee panel data for Portugal, we consider virtually all spells of interfirm mobility over a period of 10 yr. We find that foreign firms offer significantly more generous wage policies, although there is also a (smaller) selection effect. The results are robust to the consideration of displaced workers, wage growth differences in the new firms, and different subsets of workers. (JEL J31, J63, F23)     

A Production Theory Approach to the Imports and Wage Inequality Nexus

I employ a production theory approach to investigate the effect of fluctuations in the prices of imports of different origin on the wage differential between skilled and unskilled labor in the United States. Unlike competing methodologies, the employed framework of analysis accounts for the economy-wide effects of imports that derive from both domestic output substitution as well as downstream production. The results of this study suggest that the overall impact of imports, including those that originate in less developed economies, on the wage differential is negligible. Economy-wide dynamic processes of capital accumulation and technical change appear to play a far more important role in wage dispersion.     

LABOR MARKET OPENNESS,H‐1B VISA POLICY,AND THE SCALE OF INTERNATIONAL STUDENT ENROLLMENT IN THE UNITED STATES

International students have long comprised an important part of U.S. higher education. However, little is known regarding the factors that encourage students from across the world to enroll in U.S. colleges and universities each year. This paper examines the relationship between international enrollment and the openness of the United States' skilled labor market, currently regulated by the H‐1B program. Gravity regressions reveal that H‐1B visa issuances to a country are positively and significantly related to the number of international students from that country. Causal estimates of the impact of labor market openness are achieved by exploiting a dramatic fall in the H‐1B visa cap in October 2003. Triple difference estimates show that the fall in the cap lowered foreign enrollment by 10%. (JEL F22, I21, J11)     

"BUMPING", LAYOFFS, AND WORKSHARING

This paper deals with an interesting but often-neglected labor practice prevalent in large North American firms with well-developed internal labor markets. Large North American firms typically respond to a decline in demand for their products by first reducing the number of hours worked (or worksharing). As the demand continues to fall, however, they begin to make skilled workers "bump onto" unskilled jobs, displacing unskilled workers. Skilled workers are laid off only after a considerable number have bumped. I develop an implicit contract model and explain the practice.     

Trade and Wage Inequality in Developing Countries

In this article we provide a theoretical analysis of the possible impact of trade and fragmentation on the skilled–unskilled wage gap in a small developing economy. In particular, we illustrate the possibility of a decline in the relative wage of the unskilled labor following an improvement in the terms of trade. (JEL F1 , F11 , F12 )