Work hours and wage inequality: Evidence from the 2004 WERS

This paper uses the 2004 wave of the Workplace Employment Relations Survey to test whether work hours and wage inequality are positively correlated because of financial incentives associated with inequality. Workers may work longer hours in order to increase their expected income through performance pay or promotion, resulting in a positive correlation between inequality and work hours. Contrary to other work, it is found that the relationship between wage inequality and the occupation and firm level and work hours cannot be attributed to the effect of financial incentives. Demand constraints faced by workers explains the positive correlation between occupation inequality and work hours attributed to financial incentives by others.     

Decomposition of Changes in Korean Wage Inequality, 1998–2007

South Korea experienced a steep increase in wage inequality between the Asian financial crisis in 1997 and the global financial crisis in 2008. This paper investigates the causes of the sharp change during that time period by looking at the contributions of changes in the distributions of schooling and unionization. The effects are estimated applying two robust distributional function based decomposition methods on Korean Labor and Panel Survey data for the time period 1998–2007. The results suggest changes in the distribution of schooling can explain about 10 % of the changes in the 90/50 percentile wage gap. The declining unionization rate does not have much impact on the upward trend of Korean wage inequality. In addition, aggregate decomposition results suggest that changes in labor force composition can explain a significant proportion of the total wage changes in the upper-tail of the distribution. Based on our findings we provide a list of policy recommendations to address the wage inequality issue in Korea.     

Wage inequality and team production: An experimental analysis

Numerous survey studies report that human resource managers curb wage inequality with the intent to avoid detrimental effects on workers’ morale. However, there exists little controlled empirical evidence demonstrating that horizontal social comparisons and wage inequality have adverse effects on worker behavior. In this paper, we present data from a laboratory experiment that studies the impact of wage inequality on participation and effort choices in team production. Overall, we do not find evidence that wage inequality has a significant impact on either participation or effort choices.     

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)     

DOES FINANCE ALTER THE RELATION BETWEEN INEQUALITY AND GROWTH?

This paper introduces a model in which greater inequality reduces growth in economies with low levels of financial development but that this effect is attenuated in economies with more developed systems. The model also predicts that individuals in economies with developed financial markets have a higher tolerance to inequality. Using a panel dataset that covers a large number of countries, this paper shows empirical evidence that is consistent with the main predictions of the model. Overall, this paper's major findings highlight that some of the pernicious effects of inequality can be attenuated by improving access to credit. (JEL D3, E6, P1, O4, I2)     

REDISTRIBUTING INCOMES: EX ANTE OR EX POST

The standard analyses of optimal income taxation assume that the distribution of gross wages in the economy is immutable depending as it does on the distribution of innate abilities. In this paper I assume that wage distribution is not fixed but that it can be varied, up to a point, by more or less precise measurement of workers' innate abilities. I demonstrate that complete knowledge of abilities is not desirable if income can only be distributed using a linear tax. I isolate those variables which favor the narrowing of wage inequality measured by the variance with the mean held constant. This section of the paper is related to the existing literature on the desirability of price randomization.
In the second part of the paper I consider the consequences of spreading wage distributions on the optimal tax rate. It is shown that those consequences are ambiguous and dependent on the form of the social welfare function.     

Can a minimum wage increase have an adverse impact on inequality? Evidence from two Latin American economies

This paper uses a semiparametric model to analyze the impact of an increase in the real minimum wage on inequality in Colombia between 1995 and 1999 and in Paraguay between 1993 and 2000–2001. Simulations suggest that if the employment effects of the minimum wage increase are ignored, the underlying policies would contribute to reduce earnings inequality in Colombia and would be inequality neutral in Paraguay. By considering the drop in wages of those who lost their jobs, simulations suggest that in both countries the policy in question would increase earnings inequality under some assumptions about the employment elasticity of the minimum wage and the new level of earnings unemployed workers rely upon. While these findings do not mean that minimum wage increases in LDCs (Less Developed Countries) necessarily have adverse distributional affects, they suggest that minimum wage policy should be implemented with care depending on how sensitive employment is to wage increases. An erratum to this article can be found at     

Wage distribution and firm size: The case of the United States

Substantial literature has been produced on the increasing wage gap in the United States, invoking various possible factors, but largely ignoring the relationship between firm size and wage distribution. In this study, the author decomposes wage differences over time between large, medium and small firms, identifying the effects of observed characteristics (and their returns) along with residual inequality, i.e. inequality among workers with the same observed characteristics. From 1992 to 2012, trends at small, medium and large firms became more uniform, while wage inequality rose across the board. Significantly, it increased more quickly in the upper half of the wage distribution and at large firms, where residual inequality was highest.     

Explaining the Wage Gap: Intra-Industry Trade, Services Linkages and Falling Transportation Costs

In the debate on globalisation and wage inequality within countries, Heckscher–Ohlin theory has featured prominently, yet fails to take into account that globalisation comprises much more than increased trade between advanced and less-advanced countries. This paper develops a framework that takes better heed of the many aspects of globalisation and thereby addresses a new channel through which globalisation might influence wage inequality. Our results indicate that to understand the impact of globalisation on wage inequality, one needs insight in the nature and stage of globalisation and the relative size of a country.     

Compensation systems and earnings inequality

We develop a wage-structure determination model in which a firm with incomplete information offers an optimal sequence of contracts for its heterogeneous employees. The model integrating the principal-agent framework and monitoring mechanism is characterized by endogeneity of the selection of two compensation methods: performance-pay and non-performance-pay schemes. The model is used to examine the switching of pay schemes and its inequality effect. We point out that the growth of performance-pay jobs is accompanied by a downward adjustment of the rewards for performance, which brings forth a countervailing effect on wage inequality. The simulation analysis of a case of uniform-distributed ability reveals that the net effect of the growth of performance-pay jobs on wage inequality depends on the driving force behind the switch.     

Verteilungseffekte von Finanzialisierung

Financialisation is often associated with rising income inequality. The article describes the major aspects of financialisation in the foreign, financial, business and household sector, and identifies several hypotheses how financialisation affects functional income distribution. We discuss enhanced exit options of firms, rising financial overhead costs for businesses, increased competition in capital markets, and weakened bargaining power of workers due to indebtedness. The different hypotheses are operationalised through empirical measures and their effect on the wage share is tested econometrically by means of a panel data set of 14 OECD countries over the period 1992–2014. We find statistically significant negative effects of financial payments of firms and financial openness on the wage share.     

Skill-biased technical change, educational choice, and labor market polarization: the U.S. versus Europe

This paper analyzes the effect of recent technical change on the labor market and explains the observed differences in wage inequality among advanced countries. In particular, we focus on the difference between the inequality in the U.S. and in continental Europe. Many studies have indicated a rise in wage inequality in the U.S. over the past three decades. On the other hand, there has been little change in wage inequality in continental Europe. By introducing human capital investment into the model by Acemoglu (Am Econ Rev 89:1259–1278, 1999), we show that ex ante homogeneous economies would have distinct ex post wage distribution. The strategic complementarity between human capital investment and firms’ hiring strategies yields the possibility that multiple equilibria exist, which explains the difference in wage distribution between the U.S. and Europe. In addition, we show that differences in tax or education systems can explain the difference in wage distribution between the U.S. and Europe.     

Sex Inequality at Higher Levels in the Hierarchy: An Intraorganizational Perspective

The relationship of sex-based wage inequality to level in the hierarchy is investigated for 2,631 employees of a large financial services organization. As hypothesized, men earned more than women overall, and the wage gap between men and women was greater at higher levels in the hierarchy than at lower levels in the hierarchy. The effects of performance ratings on salary also differed by level. At higher levels, the impact of each increase in performance rating was greater for men than women, whereas at lower levels the impact was similar between men and women.     

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.     

A simultaneous equation model of economic development and income inequality

The paper extends existing work on inequality and economic development by estimating a cross-country structural model that identifies bi-directional relationships between income inequality and other indicators of social and economic development. Overall, lower inequality is associated with improvements in other development indicators, but this is the result of several complex interactions. The most striking feature of the structural model is the insight it provides into the reasons behind the negative ‘Africa dummy’ in previous cross-country growth studies.     

Gender inequality in wage earnings and female self-employment selection

Female self-employment has risen strongly over the last few decades and has become an important labor market development. The few studies that have examined women’s decision to become self-employed indicate that this decision is complex. Women are more likely than men to shoulder family-related obligations, especially child rearing, and there is evidence that this affects some women’s propensity to become self-employed. Also, women have yet to achieve full economic parity with men in wage employment. This paper specifically examines how gender inequality in wage earnings may precipitate some women’s selection out of wage employment and into self-employment. We find that women’s lower wage returns to observed worker characteristics have a positive and significant effect on women’s decision to switch from wage employment to self-employment.     

Education and wage inequality in the informal sector: The case of Cameroon

This article analyses the effects of education on wage inequality in the informal sector in Cameroon. The author uses quantile regression on data from the Second survey on employment and the informal sector in Cameroon (EESI 2) of 2010. The results indicate that both wages and wage inequality increase with education in the informal sector, with tertiary education creating greatest inequality. These findings point to a number of policy recommendations for a transition to formality, such as the creation of more jobs for a skilled workforce, the development of sites adapted to informal sector activities and the creation of more vocational schools.     

Fringe Benefits and Inequality in the Labor Market

This study shows that when fringe benefits are accounted for, inequality increases at a point in time and grew faster from 1987 to 1994. Several alternative explanations of the observed discrepancies between wage inequality and compensation inequality are assessed. The evidence is that the disproportionately greater decline in income for less skilled workers is responsible for the greater decline in health insurance coverage, which in turn contributes to greater inequality growth when fringe benefits are accounted for.     

Financial development, investment, and economic growth

In this article, I use a multivariate vector-autoregressive (VAR) approach to examine the effects of permanent financial development on domestic investment and output in 41 countries between 1960 and 1993. The VAR approach permits the identification of the long-term cumulative effects of financial development on the domestic variables by allowing for dynamic interactions among these variables. The results reject the hypothesis that financial development simply follows economic growth and has very little effect on it. Instead, there is strong evidence that financial development is important to growth and that investment is an important channel through which financial development affects growth.     

Have unions impeded growing wage dispersion among young workers?

Wage inequality is examined for young males over the period 1980–1993. While wage inequality increased substantially for nonunion workers over this period, wage inequality increased only modestly for union workers. In part, this difference results from divergent trends in skill prices—returns to skill rose in the nonunion sector but contracted slightly in the union sector. In particular, returns to education increased sharply in the nonunion sector while remaining stagnant in the union sector. At least for young workers, these findings suggest that unions have been largely successful in resisting market pressures for greater wage inequality. We also uncover evidence suggesting that, as relative returns to education decline in the union sector, highly educated young workers become less likely to choose union employment. We acknowledge the helpful comments of Dek Terrell, Steve Trejo, and Carol Horton Tremblay.