Rurality and Income Inequality in the United States, 1975–2015

Recent events have focused attention on the perceived widening of the economic divide between urban and rural areas, and on the continued rise of national income inequality. We demonstrate that, in fact, the average income gap between urban (metropolitan) and rural (nonmetropolitan) households has not risen over the past 40 years, and makes virtually no contribution to national income inequality. Rising national inequality is driven by rising inequality within both urban and rural America, not by an urban/rural divergence. As is well known, the growing dispersion of household money income is partly driven by rising wage inequality, particularly in urban areas. Less well recognized is the role played by other income sources. We show that a decline in the progressivity of the distribution of social security payments and cash transfers, and an increase in the regressivity of the distribution of retirement incomes, have jointly made a comparably large contribution to rising income inequality. At the same time, the share of income from self-employment has declined, particularly in rural America, and because self-employment income is very unequally distributed, its diminution has retarded the growth of rural inequality. In 2014–15, however, rural inequality increased, cutting the urban/rural inequality gap in half.     

Does International Outsourcing Really Lower Workers’ Income?

We analyze the impact of international outsourcing on income, if the domestic labor market is imperfect, i.e. there is a bilateral bargaining between a firm and a labor union. In our analysis we distinguish between the cases where the parties negotiate over the wage only and where they negotiate over both wage and profit sharing. We find in the first case that outsourcing has an ambiguous effect on the workers’ income, while it increases the workers’ income in the second case. For the optimal amount of international outsourcing, we find that, depending on the wage effect of outsourcing, in a pure wage bargaining system it can be higher or lower than the level where domestic and foreign marginal labor costs are the same. In contrast, in a wage and profit share bargaining system, the amount of outsourcing lies below this level.     

Firm Ownership and Rent Sharing

In this paper we analyse—theoretically and empirically—how the degree of private versus public ownership of firms affects the degree of rent sharing between firms and their workers. Using a particularly rich linked employer-employee dataset from Portugal, covering a large number of corporate ownership changes across a wide spectrum of economic sectors over more than 20 years, we find that rent sharing is significantly higher in firms with a larger share of private ownership. Estimates from our most preferred empirical specification suggest that an increase in the private ownership share of 10 percentage points increases (on average) the rent-sharing elasticity by 0.0002. Based on a theoretical analysis that incorporates union-firm wage bargaining and efficiency wage effects within the same modelling framework, this result cannot be explained by private firms being more profit oriented than public ones. However, the result is consistent with a scenario whereby privatisation leads to less job security for workers, implying stronger efficiency wage effects.     

The difference between wages and wage potentials: Earnings disadvantages of immigrants in Germany

Immigrants in Germany have poor earnings performance relative to natives. Claiming that human-capital endowments determine earnings potentials rather than actual earnings, a stochastic earnings frontier is estimated and used to seek systematic differences between natives and migrants for GSOEP data for the year 2000. While empirical results clearly support the frontier assumption, natives and immigrants are surprisingly about the same with respect to the frontier. Assuming a half-normal distribution of the wage gap, on average, both groups transform a modest 84% share of their potential income into market earnings. This implies wage inequality can be attributed to human-capital differentials alone. The human-capital endowments of immigrants are largely determined by the very low percentage who have college degrees, their slow assimilation and zero-return on imported experience. The paper also tries to explain individual wage gaps, which are significantly decreased in married subjects raising families, but increased in employees in small- or medium-sized relative to larger firms. However, these variables only make minor contributions to the variance.     

JOINT VENTURES AND OFFSHORE OIL LEASE SALES

Alternative explanations of joint bidding for offshore oil tract leases are examined. The models suggest that firms undertake joint bids: 1) to reduce risk by spreading ownership across tracts; 2) to share technical expertise including information; and 3) to ameliorate financial constraints. These hypotheses are examined empirically using the multiple logit technique and other tests with data constructed from the Baltimore-Canyon sale of 1976. The results suggest that firms' behaviors are consistent with the explanations of diversification and sharing of expertise; explanations based on financial constraints are shown to be consistent with the data in the risk-averse case but not in the risk-neutral case. Implications of these results for research and policy are discussed.     

Household wealth and the measurement of economic well-being in the United States

We analyze the level and distribution of economic well-being in the United States during the 1980s and 1990s based on the standard measure of money income and a measure in which income from wealth is calculated as the sum of lifetime annuity from nonhome wealth and imputed rental-equivalent for owner-occupied homes. Over the 1982–2000 period, median well-being increases faster when these adjustments are made than when standard money income is used. This adjustment also widens the income gap between African-Americans and whites but increases the relative well-being of the elderly. Adding imputed rent and annuities from household wealth to household income considerably increases measured inequality and the share of income from wealth in inequality. However, both measures show about the same rise in inequality over the period. We also find an increasing share of wage and salary income in our expanded definition of income among the richest 1% over the period but do not find that the “working rich” have largely replaced rentiers at the top of the economic ladder.      

The minimum wage and productivity differentials

A firm’s ability to adjust its production process to economize on low-skilled labor when faced with a minimum wage increase will differ greatly depending on industry or occupation. For example, more capital-intensive means of cleaning hotel rooms or serving customers at restaurants may not be readily available without degrading service quality. In such situations, the productivity of labor is essentially capped, and firms have few options when the minimum wage increases. This simple observation has implications for studies that rely on microdata to examine the effects of minimum wage increases. If firms only increase prices in response to a minimum wage increase, employment effects are likely small. If the goal of the minimum wage is to redistribute income from firms and consumers to workers, minimum-wage increases targeted at industries and occupations where such rigidities result in an inelastic demand for labor may achieve the desired goal at a lower cost than across-the-board increases. However, such a scheme causes an inefficient allocation of labor and would be subjected to substantial political pressures that may lead to anomalous results. Additionally, it is unreasonable to conclude that policy makers have the necessary information to skillfully set the minimum wage. I thank Brian E. Chezum and Jeff Waddoups for helpful comments. All mistakes, of course, are my own.     

Parenthood wage penalties in a double income society

We estimate how parenthood affects hourly wages using panel data for Norwegian employees in the years 1997–2007. Though smaller than for most other OECD countries, we find substantial wage penalties to motherhood, ranging from a 1.2 % wage reduction for women with lower secondary education to 4.9 % for women with more than four years of higher education. Human capital measures such as work experience and paid parental leave do not explain the wage penalties, indicating that in the Norwegian institutional context, mothers are protected from adverse wage effects due to career breaks. We do however find large heterogeneity in the effects, with the largest penalties for mothers working full time and in the private sector. Contrary to most studies using US data and to previous research from Norway, we find a small wage penalty also to fatherhood. Also for men, the penalty is greater for those who work full time and in the private sector. A substantial share of the fatherhood wage penalty is explained by paternity leave.     

FEAR AND LATHING IN THE MICHIGAN FURNITURE INDUSTRY: EMPLOYEE-BASED DISCRIMINATION A CENTURY AGO

We analyze employee-based discrimination using historical data on workers attributes from Michigan's furniture industry. The data provide compelling evidence of employee-based discrimination in the form of a compensating wage differential. A one percentage point decrease in the share of the work force from the worker's own ethnic group increased the wage about 0.1 percent. This response was larger in small firms, in small towns, and among certain ethnic groups. Protestants were generally paid more to work with Catholics. The additional labor costs generated by employee-based discrimination were probably offset by several benefits which rendered complete segregation unnecessary.     

The Gender Wage Gap in the United States and Cross Nationally

Scholarship in sociology and economics has long explored the gender wage gap. Recent research suggests that these inequalities are indicative of important differences not only between men and women, but among women and men, reflecting rising levels of income inequality among workers in the post‐industrial era. We argue that the most interesting debates in the gender wage gap – those exploring differences among subgroups by class, race, and/or parenthood status (such as the motherhood wage penalty), as well as those considering differences across countries – can bring new insights to the study of wage inequality, as well as to understandings of what drives gendered wage inequality.     

MINIMUM WAGES,IMPORT STATUS,AND FIRMS' INNOVATION: THEORY AND EVIDENCE FROM CHINA

This study explores the heterogeneous effects of minimum wage on innovation of different types of firms. We develop an open‐economy R&D‐based growth model and obtain the following result: raising the minimum wage reduces innovation of firms that use domestic inputs but increases innovation of firms that import foreign inputs. We test this result using city‐level data on minimum wages and firm‐level patent data in China. In accordance with our theory, we find that raising the minimum wage is associated with more innovation by importing firms and less by non‐importing firms. This result survives a battery of robustness checks. (JEL E24, F43, O31)     

Employer attitudes towards refugee immigrants: Findings from a Swedish survey

Based on a large‐scale survey of Swedish firms, the authors identify significant heterogeneity in their attitudes towards refugee hiring, job performance, wage setting and discrimination, though experience of employing refugees reduces negative attitudes. Firms’ reasons for discontinuing their employment of refugees are not related to discrimination by staff or customers, but rather to refugees’ suboptimal job performance. While the majority of firms do not regard the collectively agreed minimum wages as an important obstacle to the hiring of refugees, firms with a large share of refugees on the payroll report that reducing those wage rates would enhance employment substantially.     

Recent trends in the union wage premium

Estimates of union-nonunion wage differentials are updated by examining a wide variety of subgroups in the general population. Variations in union wage premiums are tracked over a 15-year period, allowing inter-temporal comparisons that are not usually available. One important finding is that union wage premiums have been generally rising since 1972–1973. It also appears that females and nonwhites no longer gain the huge payoffs from unionism that evidence has suggested. The impact of race and education on union wage premiums is weighed, and there is an examination of how levels of education, association with blue-collar or white-collar occupations, and employment in specific industries affect union premiums. The author thanks Professor Jack Skeels for invaluable comments and Northern Illinois University for financial support.     

Top incomes and human well-being: Evidence from the Gallup World Poll

The share of income held by the top 1 percent in many countries around the world has been rising persistently over the last 30 years. But we continue to know little about the relationship between the rising top income shares and human wellbeing. Using data from 24 countries and years ranging from 2005 to 2013 in the Gallup World Poll and the World Income Database, this study examines the relationship between top income share and different dimensions of subjective wellbeing. The results are mixed, with the negative relationship between top income shares and average life ladder being driven largely by the European sub-sample. For the European countries, we also document evidence that top income is statistically significantly associated with lower average enjoyment and being well-rested yesterday, and higher average stress and sadness yesterday. Overall, our findings suggest that, at least for individuals in Europe, an economic policy that increases national incomes may have significant crowding-out effect on aggregate evaluative wellbeing if it only increases the share of income at the very top of income distribution. More generally, our results highlight the complex relationships between income inequality and subjective wellbeing across different countries.     

Two Components of Wage Gaps Induced by Individual-level Variables: Intra-firm or Inter-firm?

Individual-level variables such as gender, education, occupation, and employment type are well-known factors that induce wage gaps in the labor market. This article aims to divide wage gaps into two components—those arising within each firm (the intra-firm wage gap) and those arising between different firms (the inter-firm wage gap)—and measure their respective proportions by individual-level variables, as studies suggest that each wage gap based on an individual-level variable has a unique mix of an intra-firm and inter-firm wage gap. This measurement can help enrich investigation into the generative process of wage gaps and formulate effective labor policies to reduce them. Accordingly, we compared the coefficients of the independent variables of the wage function estimated by a pooled ordinary least squares model and a fixed-effect model, using nationwide employer–employee matching data collected by the Japanese government. We found that wage gaps by gender and employment type mostly consist of intra-firm wage gaps, and those by education and occupation have a larger share of inter-firm wage gaps. The findings suggest that different research strategies are required to investigate the generative process of each wage gap, and that regulations on and interventions in organizational processes are important to reduce wage gaps based on gender and employment type.     

The impact of unionization on labor’s share of income

This study examines the effect of unions on labor’s share of income. Because economic conditions within each industry are important in addressing this issue, this analysis incorporates a more disaggregated approach than has been previously used. Cross-sectional data for the 1950s — a period of more stable unionization — permit an examination of the long-run effect of wage increases on labor’s share. The empirical analysis suggests that higher labor prices have no long-run impact on labor’s share in manufacturing.     

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)     

Characteristics of cities that pass living wage ordinances: Are certain conditions more conducive than others?

Cities that have passed living wage ordinances often do so because of the strong political appeal of local living wage campaigns as a response to the declining value of the minimum wage, the outsourcing of municipal services, and rising income inequality. These campaigns generally consist of coalitions of community organizations, religious groups, and often times labor organizations. Organized labor is not the primary force behind most living wage campaigns, but they are an important constituency. Unexplored, however, are the labor market and other characteristics of those cities that have passed ordinances. This paper looks at data from the Current Population Survey (CPS) and compares cities that passed living wage ordinances to those that did not. Cities in states with high union density, and with higher levels of income inequality and larger immigrant populations appear to be more likely to pass living wage ordinances than those cities that do not have these demographics. But as important as union support may be, without key demographic and economic characteristics, it is nonetheless insufficient to achieve living wage ordinances in most cases.     

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)     

Performance pay,the marriage market and rising income inequality in Taiwan

Taiwan expanded its college access significantly over the past two decades by converting 2-year junior colleges to 4-year colleges and relaxing entrance standards. The share of college graduates in the 22–24 years old population rose from 12 to 71% between 1990 and 2014. This should have suppressed returns to schooling and lowered household income inequality. Instead, Taiwan’s Gini coefficient rose. We show that rising use of performance pay and positive assortative mating in the marriage market jointly increase the household income inequality by 46.5% between 1980 and 2014. Our results suggest that uneven quality of the most recent cohorts of college graduates led to two sources of rising household income inequality: the increased use of bonus pay which increases residual inequality among college graduates; and matching on unobserved skills in the marriage market which increases inequality among married couples.