Technological Change, Inequality and Work Sharing

The effects of technological change on wage inequality are usually studied under the assumption of exogenous supplies of skilled and unskilled workers. Moreover, in these studies there is no distinction between the stock (number of workers) and the flow (hours of work) dimension of labour services. In the present paper we construct a model in which hours of work and technological change affect both the (relative) demand and supply of unskilled workers. The labour supply of unskilled workers (numbers of persons) is derived from a model of household labour supply in which households differ regarding the disutility suffered when both household members work. Combining together the (relative) supply and demand parts of the model we are able to study the effects of technological change on wage and income inequality and to provide an explanation of recent trends more consistent with the stylized facts.technological change, inequality, household labour supply, work sharing

Capital Importers Pay More for their Imports

We examine the effects that a country’s net capital flows have on the (border) prices that a country pays for its imports of goods. Using data from 2000 to 2009 for 11 euro area countries we utilize a pricing-to-market specification to study exporters’ pricing behavior to the rest of the countries in the sample, at the industry level, for 900 goods disseminated at the 4- digit Standard International Trade Classification (SITC- revision 3) level. This allows us to construct a panel dataset which contains observations across exporters, importers, industries and time, ending up with a total of 594,327 observations. We find a strong influence of the importing country’s net capital inflows on the border prices of its imports of goods. This result is robust across different specifications of the underlying model, as well to different sample dis-aggregations across types of capital flows, product categories, and exporters.capital flows, import prices, pricing to market, globalization, euro area

Capital Accumulation and Unemployment: A Tale of Two "Continents"

In contrast to much recent work regarding the causes of European unemployment, in this paper, we emphasise the importance of capital accumulation. But unlike the few previous studies which have examined the relationship between capital accumulation and unemployment, we argue that what matters for the evolution of employment [and the unemployment rate] is not the absolute growth rate of a country\rquote s capital stock, but its evolution relative to other countries' capital stock. The empirical validity of the above statement is demonstrated for almost all OECD countries using quarterly time-series data from 1961-1995. More detailed evidence is also presented for Germany, Japan and the United Kingdom.Unemployment, capital accumulation, international competition

Product Quality, Informality, and Child Labour

This paper studies the interactions between the structure of product demand, relative wages, and the allocation of economic activity across two sectors. The agrarian sector produces a homogeneous good and consists of informal firms employing adults and children. The modern sector produces a quality-differentiated product: high-quality varieties are produced by formal firms which employ only adult labour, whereas low-quality varieties are produced by informal firms which employ child labour as well. Differences in tastes and incomes across households generate demand for both high-quality varieties and the low-quality varieties. We find that stricter enforcement of child-labour regulations and increases in minimum wages can have beneficial effects as far as the incidence of child labour and the size of the formal sector are concerned. However, since these policies have undesirable welfare effects among segments of wage-earning households, they may not garner the necessary political support.child labour, informality, product quality, welfare

Vertical Product Differentiation and the Import Demand Function: Theory and Evidence

In this paper we use a model of vertical product differentiation to cast doubt on the general validity of the import demand function as specified in macroeconomic models. The empirical importance of our theoretical concerns is then examined with the aid of two hypotheses. According to the first hypothesis, an increase in domestic wages is expected to reduce the share in total imports for goods in which the domestic comparative advantage is in high quality varieties of these goods. The second hypothesis states that an increase in non-wage income will increase the share of a good?s imports if the country has comparative advantage in high quality varieties of this good. We find considerable empirical support for both hypotheses in the data for Germany, Japan and the United States.

Do excessive wage increases raise imports? Theory and evidence.

wages, imports, vertically differentiated products

Some Macroeconomic Consequences of Basic Income and Employment Subsidies

Two macro models – one for a closed economy and the other for a small open economy – are used to examine the scope for income redistribution and employment creation. In particular, the introduction of both a guaranteed annual income (basic income) and an employment subsidy are examined, and these policies are compared to a straightforward tax cut for (unskilled) labour. All initiatives are financed by a tax on capital. In the open-economy setting, capital is perfectly mobile, so there is a trade-off between the direct benefits of each policy, and the costs that follow from the out-migration of capital. The model is used to assess the relative importance of these competing effects.guaranteed annual income, subsidies, capital taxes, redistribution.

Human Capital and the Feldstein-Horioka Puzzle

In this paper we reexamine the Feldstein-Horioka finding of limited international capital mobility by using a broader view (i.e., including human capital) of investment and saving. We find that the Feldstein-Horioka result is impervious to this change.human capital, current account, investment-saving correlation, capital mobility

Technical Change and Unemployment: Policy Responses and Distributional Considerations

We analyze some macroeconomic implications that follow from the fact that people tend to consume higher-quality goods as their incomes rise. The model involves two sectors: one producing a homogeneous good and the other producing a product with variable levels of quality. Both sectors use skilled and unskilled labour, but higher quality varieties of the differentiated good are more skilled-labour intensive. The skilled-tounskilled wage ratio is fixed at a level sufficiently low that some unskilled workersremain unemployed. We show that uniform (across sectors), Hicks-neutral technological progress must increase the unemployment rate. We then discuss a number of policy responses (tax cuts, direct government employment of the unskilled, employment subsidies to firms for hiring the unskilled, increased generosity of unemployment insurance) under different scenarios concerning how the government finances these initiatives. Political economy consequences are emphasized, as we assess each policy’s chance of receiving political support from skilled workers. We conclude that a subsidy for the employment of unskilled workers, financed by a rise in the employer payroll tax rate associated with skilled workers is a viable policy option.technical change, vertical product differentiation, unemployment income distribution.

Do Excessive Wage Increases Raise Imports? Theory and Evidence

This paper uses a model of trade in vertically differentiated products to examine the effects of "excessive wage" increases (i.e. above productivity) on the volume of commodity imports. The model predicts that for commodities, in which the country has comparative advantage in high quality varieties, an increase in "excessive wages" may result in a decrease in the volume of imports. The empirical validity of the model's predictions is demonstrated with the use of disaggregated Japanese import data for the period 1967-95. We also find that the aggregate volume of Japanese imports is not responsive to "excessive wage" changes.