Sweatshops and third world living standards: Are the jobs worth the sweat?

Many studies have shown that multinational firms pay more than domestic firms in Third World countries. Economists who criticize sweatshops have responded that multinational firms’ wage data do not address whether sweatshop jobs are above average because many of these jobs are with domestic subcontractors. We compare apparel industry wages and the wages of individual firms accused of being sweatshops to measures of the standard of living in Third World economies. We find that most sweatshop jobs provide their workers an above average standard of living. The authors thank Jeffery Hummel, Charles Murray, Larry Pratt, and Edward Stringham for helpful comments on earlier drafts. Financial support from the American Institute for Economic Research is gratefully acknowledged. The usual disclaimer applies.     

TRADE LIBERALIZATION AND CORPORATE INCOME TAX AVOIDANCE

We identify the effect of trade liberalization on corporate income tax avoidance in a sample of Chinese manufacturing firms, taking advantage of China's entry into the World Trade Organization (WTO). We find that firms engage in more tax avoidance in industries with larger tariff reductions. Further analysis shows that firms with a lack of cash or a high demand for cash before WTO entry tend to engage in more tax avoidance after WTO entry. Our study also provides evidence that manipulating costs is one way that firms avoid corporate income tax. (JEL D22, F61, F63, H26)     

COLLUSION, EFFICIENCY AND PRICING BEHAVIOR: EVIDENCE FROM THE BANKING INDUSTRY

This paper examines the validity of competing hypotheses used to explain the observed positive relationship between concentration and profits. Using price proxies from the banking industry, we find that leading (secondary) firms in a market act as price-setters (price-takers). This is true regardless of market concentration. We interpret this as evidence of the superior efficiency of leading firms and conclude that the higher profits earned by these firms is due to their superior efficiency and not collusive behavior.     

The use of informal networks in Italy: Efficiency or favoritism?

A large body of literature considers the advantages of using informal networks to match workers to jobs. However, family ties may interfere with a genuine process of worker selection, favoring people with connections over more talented workers. We offer a simple model of favoritism to explain these risks and show firms’ trade-off in using informal channels. We then investigate empirically the determinants and consequences of using informal networks in Italy by using the Bank of Italy Survey. We find that informal networks tend to be used by low-educated individuals, in small firms, in low-productivity jobs and in less developed regions. Finally, we show that informal networks have a negative impact on wages, controlling for individual and firm characteristics.     

Habitual and Occasional Lobbyers in the U.S. Steel Industry: An Em Algorithm Pooling Approach

Using U.S. steel firm data, we find that lobbying for import protection appears to be habit-forming. To identify heterogeneity in lobbying behavior among firms, we use an expectation-maximization algorithm to sort our firms into groups with different propensities to lobby and estimate the determinants of lobbying in each group. A two-pool model emerges: occasional lobbyers' lobbying depends on their market performance, and habitual lobbyers' lobbying only depends on past lobbying. The latter tends to be larger steel firms whose business is more focused in steel. Our evidence is consistent with dynamic economies of scale in protection seeking breeding protection-dependent firms.     

Deindustrialization and Poverty: Manufacturing Decline and AFDC Recipiency in Lake County,Indiana 1964–93

We combine a historical case study approach with a multivariate time series analysis to examine one of the consequences of the decline of the steel industry in Lake County, Indiana, from 1964 to 1993. Specifically, we investigate how deindustrialization contributed to the county's impoverishment, measured by the percentage of the population receiving Aid to Families with Dependent Children (AFDC). We find that the loss of manufacturing jobs, especially steel jobs, triggered a rise in AFDC recipiency rates. The growth in service jobs during the period does little to offset the negative impact of lost steel jobs. We further find that the deleterious impact of lost steel jobs on AFDC recipiency is greatest after 1980, the period of heaviest job loss in Lake County's steel industry. These results persist even after including several control variables that represent plausible alternative explanations for Lake County's rise in AFDC recipiency. We discuss the implications of our analyses for better understanding the link between deindustrialization and poverty.     

PROMOTIONS AS WORK INCENTIVES

Why do professional partnerships like law firms, accounting practices, and management consulting groups to name a few, rely almost exclusively on promotions for incentives and do not typically use incentive pay to motivate their associates? We compare three schemes (relative-input-based piece rates, tournaments with monetary prizes, and tournaments with promotions as prizes) within an environment characterized by group production and double moral hazard induced by possible wealth constraints on the supervisors. We find that the difficulty in implementing promotion tournaments is possibly an important reason for the existence of firms.     

MAKING FRIENDS TO INFLUENCE OTHERS: ENTRY AND CONTRIBUTION DECISIONS THAT AFFECT SOCIAL CAPITAL IN AN ASSOCIATION

We examine factors affecting entry and contribution to an association that provides different goods using social capital formed by heterogeneous firms that lobby in a political economy environment. We identify how associations attract the most productive firms or the least productive firms in an industry and explain how such associations differ in their intensive and extensive marginal contributions to social capital. We find that the level of regulatory stringency, association products including capital goods for members or lobbying to influence regulation, and government influenceability affect membership and contribution decisions. These results vary with firm productivity. Often, an increase in government influenceability increases social capital in associations composed of highly productive firms because they prefer to influence policy while less productive firms prefer more association‐produced production inputs. (JEL D71, D73)     

INFORMATION DISCLOSURE POLICIES: EVIDENCE FROM THE ELECTRICITY INDUSTRY

While theory suggests that information programs may correct market failures and improve welfare, the empirical impacts of these policies remain undetermined. We show that mandatory disclosure programs in the electricity industry achieve stated policy goals. We find that the proportion of fossil fuels decreases, and the proportion of clean fuels increases in response to disclosure programs. However, the programs may produce unintended consequences. For example, programs may make “clean” firms cleaner, while leaving “dirty” firms relatively unchanged. If the marginal benefits of pollution abatement are larger at dirty firms than at clean firms, disclosure programs may induce inefficient abatement allocations. (JEL D83, Q58, D21)     

PENSIONS AND WAGE PREMIA

We hypothesize that the magnitude of the pension-wage compensating differential should vary by sector, because sectoral differences in firms 'technologies result in cost differences in providing non-wage benefits'. Using data from the Survey of Consumer Finances, we find that the pension-wage compensating differential is smaller in the union sector and large firms than in small, nonunion firms. Controls for sectoral selectivity do not alter the results. Thus, workers at unionized and large firms pay a lower implicit price for their pensions either because pensions have productivity-enhancing effects, or because these firms pay workers economic rents via pensions. (JEL 532, J31, 541)     

REGULATION VIA THREATS: POLITICS, MEDIA COVERAGE, AND OIL PRICING DECISIONS

Using the oil crisis of the late 1970s as a case study, we examine,the intertwined influences of public opinion and media attentionon the credibility of regulatory threats. We focus on threefactors: the intensity of public demands for regulatory intervention,the extent to which there are other competing demands on legislativeattention, and the availability of scapegoats external to theindustry. We use television news coverage of various topicsto measure these three factors. We hypothesize that firms threatenedwith potential regulation restrained price increases, with thelargest and most publicly visible firms exercising the greatestrestraint. We find that large, visible oil firms restrainedprice increases for the most important decontrolled prodicts(diesel fuel oil) when media coverage of the oil industry wasextensive. These firms exercised less restraint when the governmentwas busy with other issues or when political instability inthe Middle East offered an external rationale for oil priceincreases.     

A model of monopoly and “efficient” unions with endogenous union coverage: Positive and normative implications

We present a model of a rent-maximizing union that organizes to increase its coverage of an industry and analyze monopoly and “efficient” unions in this setting. Our model is unique in that we allow for a competitive industry with free entry and find union and nonunion firms coexisting with product market equilibrium. This is achieved by incorporating the insight that firms are heterogeneous in productive characteristics. An important implication of our model is that an “efficient” union that covers a nontrivial share of the market is not efficient and may in fact be less efficient than a monopoly union.     

HORIZONTAL MERGERS IN THE PRESENCE OF CAPACITY CONSTRAINTS

We examine a merger between two competitors in a Bertrand‐Edgeworth model. We find that the effects of merger depend on the tightness of capacity constraints. The combination of two firms has no price effect if and only if the capacity constraints of all firms are binding both before and after the merger. However, a merger may turn a binding capacity constraint into a slack one, which results in higher prices. In an industry where excess capacity drives the premerger prices of all firms to the marginal cost, a merger may cause prices to rise even though aggregate capacity remains constant. (JEL L13, L40)     

BUSINESS RESOURCES AND TAXATION: A CROSS-SECTIONAL EXAMINATION OF THE RELATIONSHIP BETWEEN ECONOMIC ORGANIZATION AND PUBLIC POLICY

Many writers have speculated about the connection between economic resources of corporations and their ability to dominate politics in democratic societies with advanced capitalist economies. Using a cross-sectional analysis of business taxes in the American states, this study examines the political impact of four economic resources that are plausibly related to heightened business political influence. With seven factors held constant, I find that states with larger enterprises are most likely to have lower taxes on manufacturing, but concentrated sales do not have any effect on these taxes. The degree to which the organizational efforts of firms are handicapped because industry products are diverse also has an independent relationship with state and local taxes paid by manufacturers, but this relationship does not hold when the least industrial states are excluded from the equations. I also find that where competition between political parties is most intense, tax policies will be less likely to favor business interests. It follows that the evidence in this study is consistent with a hypothesis that firms can translate their formidable economic resources into political influence at the state and local level.     

EMPLOYEE FINANCIAL LITERACY AND RETIREMENT PLAN BEHAVIOR: A CASE STUDY

This article uses administrative data on all active employees of the Federal Reserve (FR) System to examine participation in and contributions to the Thrift Saving Plan, the System's defined contribution (DC) plan. We link to administrative records a unique employee survey of economic/demographic factors including a set of financial literacy questions. Not surprisingly, FR employees are substantially more financially literate than the population at large. Most importantly, financially savvy employees are also most likely to participate in their DC plan. Sophisticated workers contribute three percentage points more of their earnings to the DC plan than do the less knowledgeable, and they hold more equity in their pension accounts. We examine changes in employee plan behavior 1 year after employees completed a Learning Module about retirement planning, and we compare it to baseline patterns. We find that those employees who completed the Learning Module were more likely to start contributing and less likely to have stopped contributing to the DC plan postsurvey. In sum, employer‐provided learning programs are shown to significantly impact employee retirement saving decisions and consistent with a lot of other research, higher levels of financial literacy are found to have a beneficial impact on retirement saving patterns. (JEL J3, H7)     

Union rents and market structure revisited

Several recent studies give conflicting evidence on whether market power associated with industry concentration is an important source of union rents. Using a 1977 sample of 327 four-digit manufacturing industries, we re-examine the issue with a regression analysis that allows for differential union effects on price-cost margins across three levels of concentration. Large and small firm as well as industry average price-cost margins are analyzed. The results reaffirm those of Hirsch and Connolly (1987), who conclude that the effect of unions on profits is independent of market structure, and thus market power is not an important source of union rents. We find that unionization: (1) reduces industry profits in all three concentration groups with statistically insignificant differential effects, and (2) has a greater negative effect on the profits of large firms than it does on the profits of small firms, regardless of the concentration category. We benefited from the comments of an anonymous referee. Any remaining errors are our own.     

Is there a (transracial) adoption achievement gap?: A national longitudinal analysis of adopted children's educational performance

In one of the first longitudinal population-based studies examining adopted children's educational achievement, we analyze whether there is a test-score gap between children in adoptive families and children in biological families. Using data from the Early Childhood Longitudinal Study, we find in aggregate adopted children have lower reading and math scores than their counterparts living in biological families. Yet there is significant variation among adoptive families by their race and health status. On one hand adoptive parents tend to be White and have more economic capital than their non-adoptive counterparts potentially contributing to educational advantages. However adopted children are also more likely to have special educational needs, contributing to greater educational disadvantages. Untangling these variables through a multivariate regression analysis, we find that transracially adopted children have similar test scores to White children living with biological parents. We point to the interaction between race, family resources and children's health status and how these characteristics differentially shape achievement outcomes for adopted children.     

Appetite for Destruction? China,Ecologically Unequal Exchange,and Forest Loss

We test the hypothesis from the theory of ecologically unequal exchange that agricultural exports to China are related to increased forest loss in low- and middle-income nations exporting to it. We do so by analyzing data for 75 low- and middle-income nations using ordinary least squares regression. We find support for our hypothesis that flows of agricultural exports from low- and middle-income nations to China are related to increased forest loss in exporting nations. We also find that a country's total agricultural exports, proximity of forest to infrastructure, and protected areas tend to increase forest loss.     

Union effects on productivity,personnel practices,and survival in the automotive parts industry

We estimate the effects of unions on productivity and compensation in the automotive engine and non-ornamental body parts manufacturing industry using data obtained from a detailed questionnaire and a series of personal interviews. We find no significant union productivity effect but a significant 30 percent compensation premium in firms organized by the United Auto Workers. Individual personnel policies were shown to differ significantly in the expected manner between the union and nonunion sectors. Finally, we use data on bankrupt firms to show how the failure to correct for sample selection bias might yield upwardly biased estimates of the union productivity effect. We would like to thank Elizabeth Savoca and an anonymous referee for their helpful suggestions.     

PRESERVATION OF TRADE SECRETS AND MULTINATIONAL WAGE PREMIA

This paper considers the strategic behavior of a multinational firm with superior technology operating in a developing country. Domestic firms do not have access to the superior technology other than by hiring away multinational corporation (MNC) workers. The MNC can retain its workers by paying a wage premia, and we determine how the industry structure and the nature of strategic competition between firms affects the MNC's incentive to pay this premia and thus preserve its informational advantage. We characterize conditions under which MNCs inefficiently divide job tasks in order to raise the cost to domestic firms of acquiring the MNC's trade secrets. ( JEL F23, J31, O33)