Heterogeneous Firm Responses to Rising Teenage Wages

Substantial youth minimum wage changes in New Zealand between 2000 and 2007 raised teenage average wages by 5–10 per cent relative to those for adults. We use Statistics New Zealand's Linked Employer–Employee Database (LEED) to examine whether firms' teenage labour demand responses to these changes are greater for firms with higher teenage‐employment share. We find evidence that high teen‐employers reduced their teen employment relative to other firms and had lower survival rates over the period. However, firms that entered the main teen‐employment industries had higher teen‐employment shares than continuing firms. The results are consistent with endogenous technology adoption in response to non‐marginal changes in relative wages.     

The Effect of Trade on Employment and Wages in Italian Industry

The paper analyses the labour market impact of international trade on the Italian manufacturing sector. Using data for a panel of manufacturing industries the effects of trade‐induced changes in sales on employment and wages are investigated. The evidence suggests that the industry adjustment to demand shocks took place mainly through employment changes. However, increased exposure to foreign competition had a small effect on the Italian labour market, while technological change seems to have a major role in explaining the increase in unemployment.     

DOES EMPLOYMENT PROTECTION CREATE ITS OWN POLITICAL SUPPORT?

This paper investigates the ability of employment protection to generate its own political support. A version of the Mortensen–Pissarides model is used for this purpose. If wages are set through Nash bargaining, workers value employment protection because it strengthens their hand in wage negotiations. Workers in high productivity matches benefit most from higher wages as they expect to stay employed for longer. By reducing turnover employment protection shifts the distribution of match‐specific productivity toward lower values. Thus stringent protection in the past actually reduces support for employment protection today. Introducing involuntary separations reverses this conclusion. Now workers value employment protection because it delays involuntary dismissals. Workers in low productivity matches gain most since they face the highest risk of dismissal. The downward shift in the productivity distribution is now a shift towards supporters.     

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.     

Is the Labour Market Adjustment in Poland Surprising?

Abstract. On the basis of the brief review of developments in employment and wages in Poland during the stabilization program in 1990, this paper tries to provide critical comments on the two often expressed opinions: that the fall in employment was surprisingly small compared to the fall in output, and that the tax-based incomes policy played a major role in forcing a huge drop in real earnings. It is argued that the actual proportions of the fall in output and employment were in line with specific features of the “overheated” shortage economy, which existed prior to the stabilization program. Since wages were not a “nominal anchor” for most of 1990, other reasons for the astonishing downward flexibility of real wages are analyzed. It is suggested that during the labour market adjustment, the rational strategy of employees was to accept a large, real wage cut in exchange for keeping their employment. Contrary to widespread opinion, it might also be argued that incomes policy, in a short and medium run, will play a much more important role in containing wage pressure than it has until now.     

Price Effects of the Minimum Wage: A Survey Data Analysis for the German Construction Sector

Utilizing the link between employment and price changes as a result of minimum wages, we use firm‐level data to evaluate the effect of minimum wage introduction in the German construction sector. In East Germany we find significant positive price effects that exclude the possibility of rising employment. Rather, the results indicate the existence of a competitive sector‐specific labour market, and thus declining employment. In contrast, we cannot find any significant price reaction for West Germany. This suggests that the implemented minimum wage in West Germany is too low in comparison to the predominantly paid wages and is hence not binding.     

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.     

Trade-offs among the elements of flexibility: a comparison from the automotive industry

Flexibility has long been recognized as a manufacturing capability that has the potential to impact the competitive position and the business performance of an organization ([1]: Cox Jr, T. Toward the measurement of manufacturing flexibility. Production and Inventory Management Journal 1989; First Quarter:68–72, [2]: De Meyer A, Nakane J, Miller JG, Ferdows K. Flexibility: the next competitive battle. Strategic Management Journal 1989;10:135–144). This recognition, however, has not led to a unanimous approach to flexibility. For example, Japanese manufacturers emphasize flexibility more than North American or European manufacturers ( [2]: De Meyer A, Nakane J, Miller JG, Ferdows K. Flexibility: the next competitive battle. Strategic Management Journal 1989;10:135–144). While this finding provides insight into the strategic choices made by these organizations in these countries, it does not provide an in-depth comparison of specific aspects of flexibility that are leveraged and emphasized differently. Such a comparison is necessary, however, if flexibility is to be more fully understood.This paper takes a step in that direction by first breaking down the concept of flexibility into its constituent elements and dimensions. Then we introduce the notion of looking at flexibility as a capability that must be planned for and built by a firm over a period of time along these constituent elements and dimensions. Questions are subsequently raised regarding whether trade-offs occur among different elements for a given flexibility dimension. We use industry wide as well as firm-specific qualitative data from the automotive industry to answer these questions, and show that several key aspects of manufacturing flexibility have been acquired and leveraged differently by American and Japanese producers. While linkages to business performance are not directly explored, our analysis reveals that even within the same industry, firms from different countries do indeed follow different strategies to developing their flexibility capability. Implications of these results for managerial practice, along with avenues for further research in this area, are also presented.     

Industrialization,Productivity and the Shift to Services and Information

All major world economies are exhibiting a shift from products to services in terms of relative share of GNP and employment. A well accepted explanation for this shift to services has been the lower productivity growth in services relative to manufacturing. A second trend visible in the United States and other advanced economies is that from material‐intensive to information‐intensive sectors with the latter growing relative to the former. There does not seem to be a generally accepted explanation for this shift; in fact, here it would appear that productivity in information‐intensive sectors is increasing. We construct a model of an economy with endogenous production and consumption decisions by utility maximizing individuals. We show that differential productivity changes can result in either relative growth or decline of a sector. A second factor affecting the direction of change is the degree to which consumption of sector outputs approaches satiation. When marginal utility of additional consumption drops sufficiently low, productivity increases can lead to declines in the relative size and share of, and employment in the sector. Concurrently, increases in productivity increase average wealth as expected, but income inequality can either increase or decrease.     

Economic Growth and Welfare in a Neoclassical Overlapping Generations Growth Model with Minimum Wages and Consumption Taxes

We examine the effects of minimum wages on both the long‐run per worker GDP and welfare in the textbook Diamond style overlapping generations economy. In addition, we assume the existence of unemployment benefits financed at a balanced budget with consumption taxes. Under suitable conditions, it is shown that a regulated‐wage economy with unemployment performs better than a competitive‐wage economy with full employment in the long run. Moreover, a welfare‐maximizing minimum wage exists. Our findings may have interesting policy implications.     

Firing Costs,Efficiency Wages and Unemployment

This paper uses a Shapiro–Stiglitz efficiency wage model to analyse the effects of firing costs on wages, employment, expected utility and profits. It considers that the probability of a non–shirker being fired depends on an exogenous shock which follows a two–state Markov process. It finds that higher severance payments give rise to lower wages, a lower unemployment rate, an increase in firms’ profits and a decrease in the utility of both workers and the unemployed. These conclusions derive from the finding that a greater probability of keeping one’s job, because of higher firing costs, raises the value of the job and reduces the worker’s incentives to behave opportunistically; this enables firms to reduce wages. Hence, if firms pay efficiency wages, a higher degree of labour market flexibility increases unemployment.     

Technology Effects on Wages in Finnish Manufacturing

In this paper we study the effect of technology on establishment‐level wages using a classification of manufacturing industries based on four technology levels. The technology wage premiums are estimated separately for non‐manual and manual workers using wage equations with available control variables for plant and workforce characteristics (human capital) over the time period 1974–93. The results do not show a straightforward increasing relationship between a plant’s average wages and its technology at higher technology levels. However, establishments with the lowest technology level paid the lowest wages during the whole period. We also find that the relative non‐manual to manual wage ratio increased over the time period in the highest technology levels. These findings are consistent with technology wage premiums and skill‐biased technological change found in studies for other countries     

Modeling Earnings Dynamics

In this paper, we use indirect inference to estimate a joint model of earnings, employment, job changes, wage rates, and work hours over a career. We use the model to address a number of important questions in labor economics, including the source of the experience profile of wages, the response of job changes to outside wage offers, and the effects of seniority on job changes. We also study the dynamic response of wage rates, hours, and earnings to various shocks, and measure the relative contributions of the shocks to the variance of earnings in a given year and over a lifetime. We find that human capital accounts for most of the growth of earnings over a career, although job seniority and job mobility also play significant roles. Unemployment shocks have a large impact on earnings in the short run, as well as a substantial long‐term effect that operates through the wage rate. Shocks associated with job changes and unemployment make a large contribution to the variance of career earnings and operate mostly through the job‐specific error components of wages and hours.     

Effect of Quality Management Systems and Total Quality Management on Productivity Before and After: Empirical Evidence from the Indian Auto Component Industry

We study the linkages between firm‐level quality initiatives such as quality management systems (QMS) and total quality management (TQM) and output productivity in the Indian auto component industry. We use externally validated quality certification and quality awards as proxies for QMS and TQM, respectively, as it is difficult to directly measure the QMS and TQM efforts of firms. We use an unbalanced panel of 220 firms and a balanced panel of 73 firms from the Indian auto component industry over the period 1993–2006 to study these links. Both parametric as well as non‐parametric approaches are used, as appropriate, to measure the rate of change in productivity and the impact of quality initiatives on productivity change during this period. We determine the proportion of productivity resulting from technical change and relative efficiency change, thus providing insights into the structure of productivity improvements. We find that TQM efforts resulted in a high rate of productivity change (11%) in the award‐winning firms after the award. On the other hand, pre‐certification productivity change due to QMS was 5% and post‐certification change was 3.6%. In the periods prior to certification, productivity change was driven mainly by technical change; whereas the source of productivity change after certification is mixed. However, prior to awards, productivity change was driven mainly by relative efficiency change, whereas post‐award productivity change was due to technical change. The results suggest that management focus on attaining certification did generate conceptual learning (linked to technical change) during the period leading to certification, but these effects were not significant after certification. The results also suggest that the TQM programs generated significant productivity gains in the long run, although setting the associated systems in place did not result in significant productivity change prior to winning awards. Thus, the study provides direct but nuanced evidence linking quality certification as well as the adoption of TQM programs to the associated conceptual and operational learning processes and their impact on the change in productivity.     

The changing dynamics of Thai multinationals after the Asian economic crisis

This paper investigates the dynamic of Thai multinationals after the Asian economic crisis through the analysis of FDI statistics and two in-depth case studies. The paper concludes that there was a shift in the dynamic of Thai multinationals’ international expansion. While the pre-crisis international expansion relied more on networking capabilities rather than industry-specific technological skills, the post-crisis adjustments of Thai multinationals displayed a different strategy that placed much more emphasis on strengthening their industry-specific technological capabilities. In particular, Thai multinationals have placed more emphasis and commitment to the development of industry-specific technological capabilities, as well as transforming their personalised, relationship-based networks to more transparent and formal ties. The paper bears implications on the emerging multinational literature. Unlike the incremental nature of their predecessors from East Asia, the rapid rise of Thai multinationals before 1997 bypassed gradual technological process through the use of networking capabilities. However, the sustainability of networks-based competitive advantages will depend on its flexibility to change, as well as its complementary role toward industry-specific technological capabilities.     

An analysis of vendor innovation capability in the contract electronics manufacturing industry

Limited academic research has been given to analysing the innovation capabilities of vendors in outsourcing contracts. This paper seeks to address this gap in the literature by enhancing our understanding of how the innovation capability of vendors is deployed to win, run and renew outsourcing contracts with their customers. Employing the resource-based view as a theoretical basis and undertaking in-depth case study analysis of three vendors in the electronic manufacturing services industry, the research shows that to achieve the outsourcing objectives of winning, running and renewing the contract, vendors can use different configurations of the competitive priorities of cost, quality, delivery and flexibility. The research aggregates the capabilities that influence the innovative capability of a vendor into the innovation-related capabilities (IRCs) of design, new product introduction and manufacturing. Three strategies are identified for vendors on how to deploy these IRCs, and a number of propositions are developed to indicate the suitability of the three deployment strategies for different operational contexts.     

Wage and Productivity Differentials in Japan: The Role of Labor Market Mechanisms

This paper aims at explaining two stylized facts of the Lost Decade in Japan: rising wage inequalities and increasing firm‐level productivity differentials. We build a model where firms can choose between efficiency wages with endogenous effort and competitive wages, and show that it can replicate those facts. Using Japanese microeconomic data, we find support for the existence of efficiency wages in one group of firms and competitive wages in the other group. Based on those results, a simulation shows that the share of firms using efficiency wages has declined, within sectors, during the Lost Decade, as predicted by the model.     

NOTES FOR A NEW GUIDE TO KEYNES (I): WAGES,AGGREGATE DEMAND,AND EMPLOYMENT

I revisit the General Theory’s discussion of the role of wages in employment determination through the lens of the New Keynesian model. The analysis points to the key role played by the monetary policy rule in shaping the link between wages and employment, and in determining the welfare impact of enhanced wage flexibility. I show that the latter is not always welfare improving.     

BEYOND PRACTICES: A QUALITATIVE INQUIRY INTO HIGH PERFORMANCE ELECTRONICS ASSEMBLY

This paper is based on the cumulative or synergies theory of manufacturing performance, as opposed to the trade‐off perspective. The paper compares the cases of two British contract electronics assemblers, the first one having achieved a high level of performance on productivity, quality, and dependability, and the second one having achieved a lower level of performance on these criteria but higher flexibility. The case material is used to develop a “high school” analogy that helps to understand why companies come to achieve cumulative manufacturing performance in an industrial sector where competitive pressure is particularly high.     

The Macroeconomics of Employment and Wages in Mexico

The main objective of this article is to study some aspects of the labor market in Mexico, on the basis of an econometric model. Starting with an unrestricted VAR, the author finds two cointegration vectors, one with employment and output, and one with nominal wages, minimum wages, the price index, and labor productivity. A congruent model with the growth rates of the variables, and including the cointegration vectors, is finally estimated. On the basis of this model the author carries out an analysis of the effects of macroeconomic variables upon employment and nominal wages.