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This article studies the evolution of the wage differentials between graduate (skilled) and non-graduate (unskilled) workers in several European countries from the…
This article studies the evolution of the wage differentials between graduate (skilled) and non-graduate (unskilled) workers in several European countries from the beginning of the 1990s to the beginning of this century. The starting point is that all European countries show a common increase in the relative supply of skilled workers but different evolution of wage differentials. Economics theory usually relates the evolution of wage differentials not only to relative supply but also to skill-biased technological progress. I complement this explanation providing a theoretical model of wage bargaining where wage differentials are determined also by labour market institutions. My empirical findings show that both technological progress and labour market institutions are important in the determination of wage differentials. As for the former, I find that differentials depend on the pace and intensity at which technological progress takes place. As for labour market institutions, their effect, though important, is not always straightforward. In fact, some aspects of institutions, like minimum wage and the duration of unemployment benefits, favour unskilled workers while other aspects, like bargaining power and replacement rates from unemployment benefits, may magnify the differences in outside options and actually increase wage differentials.
While there has been intense debate in the empirical literature over the evolution of the college wage premium in the United States, its evolution in Europe has received…
While there has been intense debate in the empirical literature over the evolution of the college wage premium in the United States, its evolution in Europe has received little attention. This paper investigates the causes of the evolution of the college wage premium in 12 European countries from 1994 to 2009, assessing the relevance of the supply factor as a determinant of the college wage premium. I use cross-country variation in relative supply, demand, and labour market institutions to examine their effects on the trend in wage inequality. I address possible concerns of endogeneity of the relative supply using an IV strategy exploiting the differential legislations of university autonomy and their variations over time. Results show that the strong increase in the relative supply that European countries have experienced has decreased the college wage premium. The most relevant institution is the minimun wage, which significantly decreases college wage premium.
Purpose – Ascertaining the extent to which the generalized decline in union density, as well as the erosion in centralized bargaining structures and developments in other…
Purpose – Ascertaining the extent to which the generalized decline in union density, as well as the erosion in centralized bargaining structures and developments in other labor institutions, have contributed to rising within-country inequality.
Methodology – Econometric analysis of a newly developed dataset combining information on industrial relations and labor law, various dimensions of globalization, and controls for demand and supply of skilled labor for 51 Advanced, Central and Eastern European, Latin American, and Asian countries from the late 1980s to the early 2000s, followed by an analysis of 16 advanced countries over a longer time frame (from the late 1970s to the early 2000s).
Findings – In contrast to previous research, which finds labor institutions to be important determinants of more egalitarian wage or income distributions, the chapter finds that trade unionism and collective bargaining are no longer significantly associated with within-country inequality, except in the Central and Eastern European countries. These findings are interpreted as the result of trade unionism operating under more stringent structural constraints than in the past, partly as a result of globalization trends. In addition, despite much talk about welfare state crisis, welfare states, historically the result of labor's power and mobilization capacity, still play an important redistributive role, at least in advanced countries.
Practical implications – Union attempts at equalizing incomes by compressing market earnings seem ineffective and impractical in the current day and age. Unions should seek to increase the workers’ skill levels and promote an egalitarian transformation of the workplace. This type of “supply-side” egalitarianism is not a new strategy for unions, but is very much embedded in the unions’ DNA.
The neoclassical ethos is predicated on a goal of efficiency, which is assumed to be advanced through competitive markets where market-clearing wages are achieved when the…
The neoclassical ethos is predicated on a goal of efficiency, which is assumed to be advanced through competitive markets where market-clearing wages are achieved when the demand for labor is exactly equal to the supply of labor. In such a market, there is no such thing as unemployment because wages either rise or fall until the demand for labor is exactly equal to the supply of labor. At the wage at which demand equals supply, all those willing and able to work at that wage will be employed. If more people are willing to work, the wage will fall further, thereby inducing firms to hire more workers, with the result being that the supply of labor once again equals the demand. Conversely, when firms are unable to hire as many workers as they would like, the wage rises to induce additional people to enter into the workforce until supply and demand are once again equal.
Purpose – We study the determinants of growing wage inequality in 16 OECD countries in the past two decades of the twentieth century. The main independent variables that…
Purpose – We study the determinants of growing wage inequality in 16 OECD countries in the past two decades of the twentieth century. The main independent variables that we consider are those pertaining to labor market institutions, to international trade with less developed nations, and to deindustrialization.
Methodology – We specify a statistical model of pay differentials using first differences over five-year periods. The main estimation method used is weighted ordinary least squares. Where necessary, we use instrumental variables and two-stage least squares. We also undertake extensive robustness exercises, including a version of extreme bounds analysis and deleting each individual country from the analysis.
Findings – The determinants of wage inequality are different in the 1980s and in the 1990s. In the 1980s, growing wage dispersion is due to changes in the institutions of the labor market, including declining unionization and declines in the level at which wages are bargained collectively. In the 1990s, increases in pay inequality are due to increasing trade with less developed nations and weakening of social insurance programs.
Originality – This is the first study to report that the causes for pay inequality differed between the 1980s and the 1990s. It is also the first to document statistically that trade with the less developed nations systematically increases pay inequality in the developed world in the 1990s.
EU social policy is perhaps the most controversial aspect of European integration yet, despite all the political clashes on the matter, concepts like “social Europe” or “social dimension” remain ill‐defined and imprecise terms. Intends to outline and clarify in detail the debate about whether or not the European Union should have competence with regard to labour market affairs. A key message is that social policy has been controversial because it has become embroiled in the debate about the future political direction of the EU. In particular, three contrasting political models –symbiotic integration, integrative federalism and neo‐liberalism – have been put forward as organizing principles for the EU and each has a coherent view of what form social policy should take at the European level. It is the clash between these three models that has caused EU social policy to be so contestable and intractable.
The chapter presents a historical and economic analysis of Nordic wage formation, with a special focus on how collective agreements really work. A stereotypical…
The chapter presents a historical and economic analysis of Nordic wage formation, with a special focus on how collective agreements really work. A stereotypical interpretation of the evolution of Nordic wage bargaining systems is that a centralised setting of wages has gradually been substituted with more decentralised pay bargaining. This overlooks the fact that central organisations could never really control wage levels, even in the golden age of centralised bargaining. Instead, central pay bargains defined minimum wage changes that ensured that local conflicts would be ruled out. Moreover, the central stipulations could often be overruled or adjusted at the local level. Following insights of Teulings and Hartog, we argue that the main function of Nordic collective agreements has always been to rule out local conflicts that would otherwise be initiated to seek local rents. Thus, collective agreements combine macroeconomic flexibility with adequate investment incentives at the local level. In this crucial sense, Nordic collective agreements are a completely stable institution. The most important transformation that has taken place is that formal peak bargaining on mean pay increases has been substituted with pattern bargaining where the manufacturing industry acts as a wage leader. Economic theory suggests that this almost amounts to centralised pay setting.
Institutions underpin the operation of national economies. These differ significantly between countries reflecting varying historical paths, policy choices and national cultures. Moreover, they need to be understood systemically as an ensemble of relations between their component parts: financial systems, corporate governance, industrial relations, patterns of state intervention, etc., have evolved together so that their operation and effects tend to reinforce each other. Different countries faced by common exogenous changes will tend to evolve along different lines rather than converge. National institutions matter: they significantly affect economic performance and distribution.
The purpose of this paper is to document the wage effects associated with sexual orientation and to examine whether the wage gap has improved following recent…
The purpose of this paper is to document the wage effects associated with sexual orientation and to examine whether the wage gap has improved following recent institutional changes which favour sexual minorities.
Ordinary least squares and quantile regressions are estimated using Australian data for 2010–2012 and 2015–2017, with the analysis disaggregated by sector of employment. Blinder–Oaxaca decompositions are used to quantify unexplained wage gaps.
Relative to heterosexual men, in 2015–2017 gay men in the public and private sectors had wages which were equivalent to heterosexual men at all points in the wage distribution. In the private sector: highly skilled lesbians experienced a wage penalty of 13 per cent; low-skilled bisexual women faced a penalty of 11 per cent, as did bisexual men at the median (8 per cent penalty). In the public sector low-skilled lesbians and low-skilled bisexual women significant experienced wage premiums. Between 2010–2012 and 2015–2017 the pay position of highly skilled gay men has significantly improved with the convergence driven by favourable wage (rather than composition) effects.
The results provide important benchmarks against which the treatment of sexual minorities may be monitored.
The analysis of the sexual minority wage gaps by sector and position on the wage distribution and insight into the effect of institutions on the wages of sexual minorities.
Debates over the definition, processes and outcomes of minimum and “living” wages are heated and often politically contentious in garment-producing countries. Internationally, there have been various initiatives to promote and support the implementation of a living wage for workers in labour-intensive manufacturing, ranging from corporate-driven social responsibility and multi-stakeholder initiatives to the long-standing living wage campaign of the global unions. One prominent regional initiative is the Asia Floor Wage Alliance (AFWA). The purpose of this paper is to assess its reach and effect in Southeast Asia.
A living wage campaign is assessed with reference to Indonesia and Cambodia, two important garment manufacturing countries in Southeast Asia. The paper draws on data collected in interviews with garment manufacturers, brand representatives, trade unionists and labour NGO activists, including members of the AFWA Steering Committee in Indonesia and Cambodia, complemented by a systematic review of documents and reports produced by the AFWA.
As the paper shows, despite a series of initiatives, the Asia Floor Wage has failed to gain traction in Cambodia or Indonesia. This is so, the paper argues, because national economic, political and institutional contexts are the primary drivers of the strategies and priorities of constituent organisations, governments and industry stakeholders. In the absence of robust local and regional coalitions of trade unions, efforts towards a common and coordinated regional approach to living wages are thus unlikely to gain traction.
To a large extent, the literature on the concepts and practices associated with the living wage has focussed on developed rather than developing countries. This paper extends the literature by providing a systematic examination of a transnational wage campaign in developing Asian countries.