Which factors shape the relationship between manufacturing and government wages?
Benedicta Marzinotto, Alessandro Turrini05 September 2014
The link between public- and private-sector compensation has important implications for the labour market and price competitiveness. This column reports that manufacturing and government wages co-move both in the long and short run, but that the long-run co-movement is much stronger where the government is an important employer. This co-movement tends to break down during fiscal consolidation periods, except in large-government countries. Moreover, manufacturing wages exhibit a stronger co-movement with productivity in countries where government wages are set via collective bargaining.
Simon Burgess, Carol Propper, Marisa Ratto, Emma Tominey, Stephanie von Hinke Kessler Scholder
During the crisis, numerous Eurozone countries have introduced public wage freezes or cuts as part of an attempt to contain rising fiscal deficits and debts. Some of these countries also had to rebalance their economies, and improve price competitiveness. The relevant question is therefore whether government wages, whilst relevant for fiscal outcomes, may also exert some impact on private-sector labour costs and price competitiveness.
How immigration benefits natives despite labour market imperfections and income redistribution
Michele Battisti, Gabriel Felbermayr, Giovanni Peri, Panu Poutvaara08 August 2014
Immigration continues to be a hotly debated topic in most OECD countries. Economic models emphasising the benefits of immigration for natives have typically neglected unemployment and redistribution – precisely the things voters are most concerned about. This column analyses the effects of immigration in a world with labour market rigidities and income redistribution. In two-thirds of the 20 countries analysed, both high-skilled and low-skilled natives would benefit from a small increase in immigration from current levels. The average welfare gains from immigration are 1.25% and 1.00% for high- and low-skilled natives, respectively.
Sourcing foreign inputs to improve firm performance
Maria Bas, Vanessa Strauss-Kahn14 July 2014
The rise of trade in intermediate inputs is well documented, but its role in shaping domestic economies is not yet completely understood. This column presents evidence from French firms on the effects of importing intermediate inputs. Firms importing more varieties of intermediate inputs increased their productivity and exported more varieties. Foreign inputs from the most advanced economies have the strongest effect on firm productivity, but imported inputs from all countries help raise the number of export varieties.
Should trade policy fight or promote imports of intermediate inputs? While several studies have shown the recent increase in imports of intermediate goods, their role in shaping domestic economies is not yet completely understood. Following the work of Feenstra and Hanson (1996), a large literature focuses on the impact of imported intermediate inputs on employment and inequality. It concludes that, like outsourcing, imported intermediate inputs have a role (although limited) in explaining job losses and wage reductions.
Kerem Cosar, Nezih Guner, James R Tybout07 July 2014
Trade liberalisations are often accompanied by labour market reforms, making it difficult to isolate their effects. This column discusses the effects of trade liberalisation, globalisation, and labour-market reforms on the Colombian labour market. Reduced trade frictions increased cross-firm wage inequality and shifted the firm-size distribution rightward, with offsetting effects on overall wage inequality. Average income increased, but the gains were concentrated among employees of large, productive firms with access to export markets. Greater trade openness also increased job turnover.
How does increased openness to international trade affect workers’ wages and job security? This question is central to the public debate concerning the effects of globalisation, but convincing quantitative answers have been difficult to come by. One fundamental reason is that major trade liberalisation episodes have often coincided with labour reforms (Heckman and Pages 2004). Colombia is a case in point. As Figure 1 shows, this country experienced deindustrialisation, higher job turnover rates, and heightened wage inequality in the years following its 1986–1991 trade liberalisation.
Giovanni Peri, Kevin Shih, Chad Sparber29 May 2014
Immigrants to the US are drawn from both ends of the education spectrum. This column looks at the effect of highly educated immigrants – in particular, those with degrees in Science, Technology, Engineering, or Mathematics – on total factor productivity growth. The authors find that foreign STEM workers can explain 30% to 60% of US TFP growth between 1990 and 2010.
Immigration to the US has risen tremendously in recent decades. Though media attention and popular discourse often focus on illegal immigrants or the high foreign-born presence among less-educated workers, the data show that immigrants are drawn from both ends of the education spectrum. At the low end, immigrants grew from 5% of workers with a high school degree or less in 1970 to 20.8% in 2010. At the high end, the figure rose from 7.3% to 18.2% for those with graduate degrees over the same period.1
The pain of the UK’s Great Recession has been spread more evenly than previous downturns, with falling real wages across the distribution. This column asks why this happened, how it compares with the US experience, and what the prospects are for recovering lost wage gains.
There have been unprecedented falls in real wages in the UK since the start of the recession triggered by the financial crisis of 2008. This did not happen in previous economic downturns – median real wage growth slowed down or stalled, but it did not fall. Indeed, in past recessions, almost all workers in both the lowest and highest deciles of the wage distribution experienced growing real wages. It was the unemployed who experienced almost all the pain – they lost their jobs and much of their incomes, and many were unemployed for a long time.
The US has once again ranked among the top two recipient countries for foreign direct investment. This column examines the effects of these large FDI inflows on the US domestic economy. Foreign multinationals are – alongside US-headquartered American multinationals – the most productive and highest-paying segment of the US economy. In addition, they provide positive spillovers to US firms. About 12% of the total productivity growth in the US from 1987 to 2007 can be attributed to productivity spillovers from inward FDI.
The US is the second-largest recipient of FDI in the world, behind China, and by far the largest target for FDI among OECD countries (OECD 2013). The numbers are large ($253 billion for the US), and the gap with the next-largest in the OECD is impressive ($63 billion for the UK and $62 billion for France in 2012).
Competing successfully in a globalising world: Lessons from Lancashire
Nicholas Crafts, Nikolaus Wolf22 October 2013
Europeans worry about competition from low-wage economies. This column looks at the basis of the success of the 19th-century Lancashire cotton industry faced with a similar situation. The message is that the productivity benefits of a successful agglomeration can underpin both high wages and competitive advantage in world trade. Policymakers can support such agglomerations by easing land-use restrictions, promoting investments in transport, and providing local public goods.
The ‘first globalisation’ of the 19th century – driven by the substantial falls in trade costs associated with the age of steam – saw the ‘First Unbundling’ (Baldwin 2006), in which industrial production and consumption became spatially separated, often by large distances. The period was characterised by the simultaneous processes of industrialisation in Europe and de-industrialisation in Asia (Table 1).
The long-run gains of not mixing genders in high-school classes
Massimo Anelli, Giovanni Peri23 February 2013
What causes fewer women than men to choose high-earning potential subjects such as engineering, economics or science at undergraduate level? This column presents new evidence from an accidental natural experiment in Italy, suggesting mixed-gender classes at the high-school level reduce the number of women pursuing these subjects. These results suggest that gender-separated classrooms are an effective way to increase women’s career opportunities and salaries.
Since the onset of the great recession in peripheral Europe, nominal hourly wages have not fallen much from the high levels they had reached during the boom years in spite of widespread increases in unemployment. This paper analyses a number of national and supranational policy options for alleviating the unemployment problem, arguing that it is unlikely that a solution will come from within national borders.