The wage premium and market structure: theory and empirical evidence from Chilean manufacturers

PurposeThis paper aims to examine how the “wage premium,” the percentage by which wages earned by skilled workers exceed those of unskilled workers, varies across industries characterized by different levels of competitiveness.Design/methodology/approachA theoretical model employing constant elasticity of substitution (CES) utility function and constant returns to scale production function is developed and analyzed to derive the effects of industry competitiveness on the wage premium. Econometric methods are applied to Chilean manufacturing data to test implications of theoretical model.FindingsOnce the relative factor endowment is being controlled, market competition significantly reduces the wage premium. More specifically, given with the same relative factor endowment, the wage premium is significantly higher under oligopolistic competition than under monopolistic competition. Empirical evidence from Chilean manufacturers supports our theoretical conclusions.Practical implicationsDuring economic development, the reallocation of production factors from unskilled labor-intensive to skilled labor-intensive industries raises the wage premiums received by skilled workers. Besides, skilled workers will earn higher wages by working in more highly concentrated industries instead of more competitive industries. This needs to be considered by government policymakers who must balance promotion of technical change with prevention of extreme the income inequality.Originality/valueThis paper examines how market structure affects wage premiums, providing new insights into a well-established literature that largely maintains that wage premiums are primarily a function of relative factor endowments or international trade.

Economic inequality in Germany, 1500-1800

The chapter reviews existing evidence regarding four aspects of economic inequality: relative factor rents, which relate to the factorial distribution of income and also underlie the so-called Williamson index (y/wus), which is correlated with the Gini index of household income; real inequality in terms of opposite movements of the price of consumer baskets consumed by different strata of society; the inequality of pay according to gender and skill, as well as between town and countryside; and wealth inequality, particularly with respect to the access to land. The main result is that, with given technology and agrarian institutions, there is a positive correlation between population and inequality.

Globalization and comparative compositional inequality

Globalization has been one of the biggest driving forces of the last half century. There has been substantial disagreement about the impact that increased international integration has on income inequality. Though most agree that globalization positively affects economic output, it is no surprise that it leads to relative winners and losers within nations. The question that remains is where in the income distribution are these relative gains and losses occurring? We offer a broader picture of globalization's effects on inequality by using a dynamic compositional approach to test the impact of globalization and relative factor endowments on the composition of income. Using data from four countries, we model the effects of globalization on quantiles of the income distribution. Our findings suggest that globalization has substantial (and divergent) effects across income strata, and that these effects differ across nations based on relative factor endowments.

On the Theory and Practice of Multifactor Portfolios

Investors interested in factor investing often seek exposure to several factors, not just one or two. The decision on how to implement multiple exposures may have a considerable effect on performance. In this article, the author considers the investment choice between a set of single-factor subportfolios and a single integrated portfolio. He defines factor exposures in a way that precisely relates relative factor exposures to the number and correlation of factors and predicts analytically consequent changes in risk and return. Theoretically, integrated portfolios increasingly outperform segregated portfolios when the number of factors is large and average correlation is low. He tests his predictions by generating over 1,000 matched pairs of historical portfolios using a wide range of factor definitions. This contrasts with the existing literature, which typically focuses on a handful of portfolios using particular versions of factors. The empirical results strongly support the theoretical predictions. In practical terms, an integrated portfolio of four orthogonal factors generates twice the factor exposure of the corresponding set of single-factor portfolios, twice the outperformance, and a 40% higher information ratio.

Investigation of the Effect of Winding Clamping Structure on Frequency Response Signature of 11 kV Distribution Transformer

This paper presents an investigation on the sensitivity of frequency response of a 500 kVA, 11/0.433 kV distribution transformer with and without the presence of a winding clamping structure. Frequency response analysis (FRA) measurements of multiple test configurations were carried out with and without the presence of a winding clamping structure. Statistical analyses based on Pearson’s correlation coefficient (PCC), Spearman’s correlation coefficient (SCC), Kendall’s correlation coefficient (KCC), cross-correlation coefficient (CCF), root mean square error (RMSE), absolute sum of logarithmic error (ASLE), hypothesis test (F-test) and relative factor (RF) were applied to determine the effect of the winding clamping structure. It was found that the removal of the winding clamping structure has an impact on the frequency response signature at the frequency less than 2 kHz during offline measurement. It was found that ASLE and F-test are suitable methods that can be used to indicate the variation of frequency response caused by clamping structure removal of the distribution transformer under study.

Differing Impact of Liberalisation: The Case of Vertically Integrated Clothing Firms

This paper compares the productivity and other characteristics of vertically integrated and non-integrated firms to investigate whether efficiency gains associated with a given liberalisation episode vary across firms, depending on their organisation. A theoretical setting of vertical integration in the textile and clothing industry is developed, to reveal that trade expansion triggers a change in the relative factor cost of these two types of firms, and consequently, a change in product range produced by them. The results are further backed by using a sample of clothing firms in Pakistan for the years 1992-2010 to analyse the effect of the phasing out of U.S. textile and clothing quotas on firm-level efficiency. The empirical findings illustrate that an increase in the level of quotas brings about a significant growth in the mean productivity of vertically integrated clothing firms. The diminishing efficiency of non-integrated firms points to the lack of ability of these firms to benefit from tighter quality control, timely revision of production policies and guarantee of supplies. JEL Classification: F13, F14, D24, L23 Keywords: Trade Liberalisation, Productivity, Vertical Integration, Firm Heterogeneity, Multi-Fibre Arrangement

An Endogenous Technology Framework

This chapter presents an endogenous technology framework capable of rationalizing the finding that technology differences are biased toward skilled labor, reproducible capital, and labor. In this framework, firms in each country choose a technology characterized by a particular combination of efficiency units attached to different inputs. The optimal choice of technology depends on relative factor prices and, therefore, on relative factor supplies. The chapter first develops the analysis for a production function with only skilled and unskilled labor before extending the model to feature the four factors of production used in the empirical framework. The two-factor model establishes the conditions under which the intuition that countries will choose technologies that augment the abundant factor is valid. It shows that the key parameter is the elasticity of substitution between the two factors of production.