Why are wage shares worsening in a competitive economy? A brief review of pays equality and industrial politics
Keywords:
Income Distribution, Quantile Regression, Wage Shares
Abstract
Wage shares have fallen substantially almost all over the world over the past 30 years. This study aims to provide a discussion of the critical elements of wage shares and to undertake a critical review of the empirical papers regarding the issue of the income distribution for labour. This paper investigates the wage share and determinants of 34 countries in 2011. There are two main objectives of this research. Firstly, the paper attempted to analyse the effectiveness of the incentives system, which is more likely to be rigid in the competitive work environment. Secondly, the research has emphasised how workers' behaviour can lead to different incentives payment through a kind of predatory behaviour or later on, we can call it an uncooperative behaviour. These objectives derived from the previous paper result in the adverse selection of worker turnover (Lazear, 1986). The findings confirm that the effect of globalisation through current account balance and the structural policy with tax wedge rate is statistically significant in wage share for those with low wage share (at the 10th per cent quantile) only. However, there is limited evidence that inflation, unemployment, education policy, and unionisation strongly affect the distribution of wages
References
Acemoglu, D. & Pischke, J.S. (1999). Beyond Becker : Training in Imperfect Labour Markets The Economic Journal, 109(453), pp. F112-F142. http://www.jstor.org/stable/2565588
Acemoglu, D., Pischke, J.-S. (1998). The Structure of Wages and investment in general training. The Journal of Political Economy, 107(3), 25 p. http://www.jstor.org/stable/2990782
Agenor, P.-R. (2016). Caught in the middle? The economics of middle-income traps. Journal of Economic Surveys, 00(00):1–21.
Akerlof, G. A., & Kranton, R. E. (2005). Identity and the Economics of Organizations. Journal of Economic Perspectives, 19(1), 9–32. http://doi.org/10.1257/0895330053147930
Akerlof, G.A., & Yellen, J.L., (1990). The fair wage-effort hypothesis and unemployment. Quarterly Journal of Economics, CV(May), 1–29. http://qje.oxfordjournals.org/content/105/2/255.full.pdf+html
Argitis, G. (2008). Inflation targeting and Keynes’s political economy. Journal of Post Keynesian Economics, 31(2):249– 270.
Argitis, G. and Pitelis, C. (2001). Monetary policy and the distribution of income: Evidence for the united states and the united kingdom. Journal of Post Keynesian Economics, 23(4):617–638.
Atesoglu, H. S. and Smithin, J. (2006). Inflation targeting in a simple macroeconomic model. Journal of Post Keynesian Economics, 28(4):673–688.
Atkinson, A. B. and Brandolini, A. (2001). Promise and pitfalls in the use of ”secondary” data-sets: Income inequality in OECD countries as a case study. Journal of Economic Literature, 39(3):771–799.
Autor, D. H., Katz, L. F., and Kearney, M. S. (2005). Rising wage inequality: The role of composition and prices. NBER Working Paper Series, page 11628.
Azam, M. (2012). Changes in wage structure in urban India, 1983–2004: A quantile regression decomposition. World Development, 40(6):1135 – 1150.
Baker, G. P. (2016). Incentive Contracts and Performance Measurement. The Journal of Political Economy, 100(3), 598–614. http://www.jstor.org/stable/2138733
Bandiera, O., Barankay, I., & Rasul, I. (2009). Social Connections and Incentives in the Workplace: Evidence From Personnel Data. Econometrica, 77(4), 1047–1094. http://doi.org/10.3982/ECTA6496
Brumm, H. J. and Krashevski, R. S. (2003). The sacrifice ratio and central bank independence revisited. Open Economies Review, 14(2):157–168.
Charness, G., & Kuhn, P. (2013). Lab Labour: what can labor economists learn from the lab? NBER Working Paper, 53(4941), 1689–1699. http://doi.org/10.1017/CBO9781107415324.004
Charpe, M., Lee, S., Arias, D., and Bridji, S. (2014). Does income distribution matter for development? Trends in labour share of income and their economic impacts in developing countries. World of Work Report, 2014(1):149–180.
Chen, Y.-H., Huang, H.-C., and Ku, K.-P. (2015). The effects of inflation and openness on inequality across alternative monetary regimes. Applied Economics Letters, 22(4):291–298.
Chow, G. C. and Megdal, S. B. (1978). An econometric definition of the inflation-unemployment trade-off. The American Economic Review, 68(3):446–453.
Cirillo, V., Soster, M. & Tamagni, F., (2016). Innovation and within-firm wage inequalities: empirical evidence from major European countries. LEM Working Paper Series, 56(January), 291–297. http://www.lem.sssup.it/WPLem/files/2016-10.pdf
Cowell, F. A. and Van Kerm, P. (2015). Wealth inequality: A survey. Journal of Economic Surveys, 29(4):671–710.
DeVaro, J., & Kauhanen, A. (2016). An `Opposing Responses’ Test of Classic Versus Market-Based Promotion Tournaments. Journal of Labor Economics, 34(3). http://www.journals.uchicago.edu/doi/pdfplus/10.1086/684911
DiNardo, J., Fortin, N. M., and Lemieux, T. (1996). Labor market institutions and the distribution of wages, 1973-1992: A semiparametric approach. Econometrica, 64(5):1001–1044.
Epstein, G. (2007). Central banks, inflation targeting and employment creation, volume 2. International Labour Organization.
Fehr, E., & Falk, A. (2002). Psychological foundations of incentives. European Economic Review, 46(4–5), 687–724. http://doi.org/10.1016/S0014-2921(01)00208-2
Furno, M. (2013). Quantile regression and structural change in the Italian wage equation. Economic Modelling, 30:420– 434.
Goldstein, M. (1972). The trade-off between inflation and unemployment: A survey of the econometric evidence for selected countries. Staff Papers (International Monetary Fund), 19(3):647–698.
Gordon, D. M. (1988). The unnatural rate of unemployment: An econometric critique of the NAIRU hypothesis. The American Economic Review, 78(2):117–123.
Holmstrom, B. R., & Tirole, J. (1989). Chapter 2 The theory of the firm. Handbook of Industrial Organization, 1(October), 61–133. http://doi.org/10.1016/S1573-448X(89)01005-8
Holmstrom, B., & Milgrom, P. (1991). Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design. Journal of Law Economics, & Organization, 745(18), 24–52. http://doi.org/10.1093/jleo/7.special_issue.24
Keynes, J. M. (1924). A Tract on Monetary Reform. Macmillan and Co.Limited.
Keynes, J. M. (1936). The General Theory of Employment Interest and Money.
Koske, I., Fournier, J.-M., and Wanner, I. (2012). Less income inequality and more growth - are they compatible?: Part 2. the distribution of labour income. OECD Economics Department Working Papers, (925):5–51.
Kurokawa, Y. (2014). A survey of trade and wage inequality: Anomalies, resolutions and new trends. Journal of Economic Surveys, 28(1):169–193.
Lazear, E. P. & Gibbs, M. (2007). Personnel Economics for Managers. 2nd Edition. http://facultysobweb.bcit.ca/kevinw/4800/documents/Person-econ-ch_1to6.pdf
Lazear, E. P. & Shaw, K.L. (2007). Personnel Economics: The Economist's View of Human Resources. Journal of Economic Perspectives, 21(4): 91-114. http://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.21.4.91
Lazear, E. P. (1989). Pay Equality and Industrial Politics. The Journal of Political Economy, 97(3), 561–580. http://www.jstor.org/stable/1830455
Lazear, E. P., & Oyer, P. (2012). Personnel Economics. The Handbook of Organizational Economics, (July), 479–517.
Li, D., Eden, L., Hitt, M. A., & Ireland, R. D. (2008). Friends, acquaintances, or strangers? Partner selection in R&D alliances. Academy of Management Journal, 51(2), 315–334. http://doi.org/10.1002/smj
Liu, H., Lu, J., & Riyanto, Y. E. (2016). Rank Order Contests with Sabotage : Equilibrium Analysis and Optimal Design. SSRN Papers. http://dx.doi.org/10.2139/ssrn.2776868
Machado, J. A. F. and Mata, J. (2005). Counterfactual decomposition of changes in wage distributions using quantile regression. Journal of Applied Econometrics, 20(4):445–465.
Macleod, W. B., & Tan, T. Y. (2016). Optimal contracting with subjective evaluation: the effects of timing, malfeasance, and guile, NBER Working Paper Series, Working Paper 22156. http://www.nber.org/papers/w22156. 1–70.
Macmillan and Co.Limited. Koenker, R. and Bassett, G. (1978). Regression quantiles. Econometrica, 46(1):33–50.
Manquilef-B¨achler, Alejandra, A., Arulampalam, W., and Smith, J. C. (2009). Differences in decline: Quantile regression analysis of union wage differentials in the united kingdom, 1991-2003. IDEAS Working Paper Series from RePEc.
Monnin, P. (2014). Inflation and income inequality in developed economies. CEP Working Paper Series.
Murphy, K. J. (1999). Chapter 38 Executive compensation. Handbook of Labor Economics, 3 PART(2), 2485–2563. http://doi.org/10.1016/S1573-4463(99)30024-9
Papapetrou, E. and Tsalaporta, P. (2017). Inter-industry wage differentials in Greece: Evidence from quantile regression analysis. International Economic Journal, 31(1):51–67.
Prasad, E. S. (2002). Wage inequality in the united kingdom, 1975-99. IMF Staff Papers, 49(3):339–363.
Prendergast, C. (1999). The provision of incentives in firms. Journal of Economic Literature, 97, March(1), 7–63. http://doi.org/10.1257/jel.37.1.7
Robin, J.-M. (2011). On the dynamics of unemployment and wage distributions. Econometrica, 79(5):1327–1355.
Rochon, L.-P. and Rossi, S. (2006). Inflation targeting, economic performance, and income distribution: A monetary macroeconomics analysis. Journal of Post Keynesian Economics, 28(4):615–638.
Schultz, T. P. and Mwabu, G. (1998). Labor unions and the distribution of wages and employment in South Africa. Industrial and Labor Relations Review, 51(4):680–703.
Shaw, J. D., Gupta, N., & Delery, J. E. (2002). Pay dispersion and workforce performance: Moderating effects of incentives and interdependence. Strategic Management Journal, 23(6), 491–512. http://doi.org/10.1002/smj.235
Startz, R. (1981). Unemployment and real interest rates: Econometric testing of inflation neutrality. The American Economic Review, 71(5):969–977.
Stiglitz, J. E. (1976). The efficiency wage hypothesis, surplus labour, and the distribution of income in l.d.c.s. Oxford Economic Papers, 28(2):185–207.
Stockhammer, E. (2017). Determinants of the wage share: A panel analysis of advanced and developing economies. British Journal of Industrial Relations, 55(1):3–33.
Takahashi, H., Kato, M., Matsuura, M., Mobbs, D., Suhara, T., & Yoshiro Okubo. (2009). When Your Gain Is My Pain and Your. Science, 323(February), 937–939. http://doi.org/10.1126/science.1165604
Tansel, A. and Bodur, F. B. (2012). Wage inequality and returns to education in turkey: A quantile regression analysis. Review of Development Economics, 16(1):107–121.
Tao, Y. L., Chuang, H. L., & Lin, E. S. (2016). Compensation and performance in Major League Baseball: Evidence from salary dispersion and team performance. International Review of Economics and Finance, 43, 151–159. http://doi.org/10.1016/j.iref.2015.10.037
Tobin, J. (1972). Inflation and unemployment. The American Economic Review, 62(1/2):1–18.
Tobin, J. (1986). Inflation and unemployment in the shared economy. Journal of Comparative Economics, 10(4):460 – 463.
Vera, L. (2014). The simple post-Keynesian monetary policy model: An open economy approach. Review of Political Economy, 26(4):526–548.
Xu, Y., Liu, Y., & Lobo, G. J. (2016). Troubled by unequal pay rather than low pay: The incentive effects of a top management team pay gap. China Journal of Accounting Research, 9(2), 115–135. http://doi.org/10.1016/j.cjar.2016.01.001
Yu, K., van Kerm, P., and Zhang, J. (2005). Bayesian quantile regression: An application to the wage distribution in 1990s Britain. Sankhy¯a: The Indian Journal of Statistics (2003-2007), 67(2):359–377.
Acemoglu, D., Pischke, J.-S. (1998). The Structure of Wages and investment in general training. The Journal of Political Economy, 107(3), 25 p. http://www.jstor.org/stable/2990782
Agenor, P.-R. (2016). Caught in the middle? The economics of middle-income traps. Journal of Economic Surveys, 00(00):1–21.
Akerlof, G. A., & Kranton, R. E. (2005). Identity and the Economics of Organizations. Journal of Economic Perspectives, 19(1), 9–32. http://doi.org/10.1257/0895330053147930
Akerlof, G.A., & Yellen, J.L., (1990). The fair wage-effort hypothesis and unemployment. Quarterly Journal of Economics, CV(May), 1–29. http://qje.oxfordjournals.org/content/105/2/255.full.pdf+html
Argitis, G. (2008). Inflation targeting and Keynes’s political economy. Journal of Post Keynesian Economics, 31(2):249– 270.
Argitis, G. and Pitelis, C. (2001). Monetary policy and the distribution of income: Evidence for the united states and the united kingdom. Journal of Post Keynesian Economics, 23(4):617–638.
Atesoglu, H. S. and Smithin, J. (2006). Inflation targeting in a simple macroeconomic model. Journal of Post Keynesian Economics, 28(4):673–688.
Atkinson, A. B. and Brandolini, A. (2001). Promise and pitfalls in the use of ”secondary” data-sets: Income inequality in OECD countries as a case study. Journal of Economic Literature, 39(3):771–799.
Autor, D. H., Katz, L. F., and Kearney, M. S. (2005). Rising wage inequality: The role of composition and prices. NBER Working Paper Series, page 11628.
Azam, M. (2012). Changes in wage structure in urban India, 1983–2004: A quantile regression decomposition. World Development, 40(6):1135 – 1150.
Baker, G. P. (2016). Incentive Contracts and Performance Measurement. The Journal of Political Economy, 100(3), 598–614. http://www.jstor.org/stable/2138733
Bandiera, O., Barankay, I., & Rasul, I. (2009). Social Connections and Incentives in the Workplace: Evidence From Personnel Data. Econometrica, 77(4), 1047–1094. http://doi.org/10.3982/ECTA6496
Brumm, H. J. and Krashevski, R. S. (2003). The sacrifice ratio and central bank independence revisited. Open Economies Review, 14(2):157–168.
Charness, G., & Kuhn, P. (2013). Lab Labour: what can labor economists learn from the lab? NBER Working Paper, 53(4941), 1689–1699. http://doi.org/10.1017/CBO9781107415324.004
Charpe, M., Lee, S., Arias, D., and Bridji, S. (2014). Does income distribution matter for development? Trends in labour share of income and their economic impacts in developing countries. World of Work Report, 2014(1):149–180.
Chen, Y.-H., Huang, H.-C., and Ku, K.-P. (2015). The effects of inflation and openness on inequality across alternative monetary regimes. Applied Economics Letters, 22(4):291–298.
Chow, G. C. and Megdal, S. B. (1978). An econometric definition of the inflation-unemployment trade-off. The American Economic Review, 68(3):446–453.
Cirillo, V., Soster, M. & Tamagni, F., (2016). Innovation and within-firm wage inequalities: empirical evidence from major European countries. LEM Working Paper Series, 56(January), 291–297. http://www.lem.sssup.it/WPLem/files/2016-10.pdf
Cowell, F. A. and Van Kerm, P. (2015). Wealth inequality: A survey. Journal of Economic Surveys, 29(4):671–710.
DeVaro, J., & Kauhanen, A. (2016). An `Opposing Responses’ Test of Classic Versus Market-Based Promotion Tournaments. Journal of Labor Economics, 34(3). http://www.journals.uchicago.edu/doi/pdfplus/10.1086/684911
DiNardo, J., Fortin, N. M., and Lemieux, T. (1996). Labor market institutions and the distribution of wages, 1973-1992: A semiparametric approach. Econometrica, 64(5):1001–1044.
Epstein, G. (2007). Central banks, inflation targeting and employment creation, volume 2. International Labour Organization.
Fehr, E., & Falk, A. (2002). Psychological foundations of incentives. European Economic Review, 46(4–5), 687–724. http://doi.org/10.1016/S0014-2921(01)00208-2
Furno, M. (2013). Quantile regression and structural change in the Italian wage equation. Economic Modelling, 30:420– 434.
Goldstein, M. (1972). The trade-off between inflation and unemployment: A survey of the econometric evidence for selected countries. Staff Papers (International Monetary Fund), 19(3):647–698.
Gordon, D. M. (1988). The unnatural rate of unemployment: An econometric critique of the NAIRU hypothesis. The American Economic Review, 78(2):117–123.
Holmstrom, B. R., & Tirole, J. (1989). Chapter 2 The theory of the firm. Handbook of Industrial Organization, 1(October), 61–133. http://doi.org/10.1016/S1573-448X(89)01005-8
Holmstrom, B., & Milgrom, P. (1991). Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design. Journal of Law Economics, & Organization, 745(18), 24–52. http://doi.org/10.1093/jleo/7.special_issue.24
Keynes, J. M. (1924). A Tract on Monetary Reform. Macmillan and Co.Limited.
Keynes, J. M. (1936). The General Theory of Employment Interest and Money.
Koske, I., Fournier, J.-M., and Wanner, I. (2012). Less income inequality and more growth - are they compatible?: Part 2. the distribution of labour income. OECD Economics Department Working Papers, (925):5–51.
Kurokawa, Y. (2014). A survey of trade and wage inequality: Anomalies, resolutions and new trends. Journal of Economic Surveys, 28(1):169–193.
Lazear, E. P. & Gibbs, M. (2007). Personnel Economics for Managers. 2nd Edition. http://facultysobweb.bcit.ca/kevinw/4800/documents/Person-econ-ch_1to6.pdf
Lazear, E. P. & Shaw, K.L. (2007). Personnel Economics: The Economist's View of Human Resources. Journal of Economic Perspectives, 21(4): 91-114. http://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.21.4.91
Lazear, E. P. (1989). Pay Equality and Industrial Politics. The Journal of Political Economy, 97(3), 561–580. http://www.jstor.org/stable/1830455
Lazear, E. P., & Oyer, P. (2012). Personnel Economics. The Handbook of Organizational Economics, (July), 479–517.
Li, D., Eden, L., Hitt, M. A., & Ireland, R. D. (2008). Friends, acquaintances, or strangers? Partner selection in R&D alliances. Academy of Management Journal, 51(2), 315–334. http://doi.org/10.1002/smj
Liu, H., Lu, J., & Riyanto, Y. E. (2016). Rank Order Contests with Sabotage : Equilibrium Analysis and Optimal Design. SSRN Papers. http://dx.doi.org/10.2139/ssrn.2776868
Machado, J. A. F. and Mata, J. (2005). Counterfactual decomposition of changes in wage distributions using quantile regression. Journal of Applied Econometrics, 20(4):445–465.
Macleod, W. B., & Tan, T. Y. (2016). Optimal contracting with subjective evaluation: the effects of timing, malfeasance, and guile, NBER Working Paper Series, Working Paper 22156. http://www.nber.org/papers/w22156. 1–70.
Macmillan and Co.Limited. Koenker, R. and Bassett, G. (1978). Regression quantiles. Econometrica, 46(1):33–50.
Manquilef-B¨achler, Alejandra, A., Arulampalam, W., and Smith, J. C. (2009). Differences in decline: Quantile regression analysis of union wage differentials in the united kingdom, 1991-2003. IDEAS Working Paper Series from RePEc.
Monnin, P. (2014). Inflation and income inequality in developed economies. CEP Working Paper Series.
Murphy, K. J. (1999). Chapter 38 Executive compensation. Handbook of Labor Economics, 3 PART(2), 2485–2563. http://doi.org/10.1016/S1573-4463(99)30024-9
Papapetrou, E. and Tsalaporta, P. (2017). Inter-industry wage differentials in Greece: Evidence from quantile regression analysis. International Economic Journal, 31(1):51–67.
Prasad, E. S. (2002). Wage inequality in the united kingdom, 1975-99. IMF Staff Papers, 49(3):339–363.
Prendergast, C. (1999). The provision of incentives in firms. Journal of Economic Literature, 97, March(1), 7–63. http://doi.org/10.1257/jel.37.1.7
Robin, J.-M. (2011). On the dynamics of unemployment and wage distributions. Econometrica, 79(5):1327–1355.
Rochon, L.-P. and Rossi, S. (2006). Inflation targeting, economic performance, and income distribution: A monetary macroeconomics analysis. Journal of Post Keynesian Economics, 28(4):615–638.
Schultz, T. P. and Mwabu, G. (1998). Labor unions and the distribution of wages and employment in South Africa. Industrial and Labor Relations Review, 51(4):680–703.
Shaw, J. D., Gupta, N., & Delery, J. E. (2002). Pay dispersion and workforce performance: Moderating effects of incentives and interdependence. Strategic Management Journal, 23(6), 491–512. http://doi.org/10.1002/smj.235
Startz, R. (1981). Unemployment and real interest rates: Econometric testing of inflation neutrality. The American Economic Review, 71(5):969–977.
Stiglitz, J. E. (1976). The efficiency wage hypothesis, surplus labour, and the distribution of income in l.d.c.s. Oxford Economic Papers, 28(2):185–207.
Stockhammer, E. (2017). Determinants of the wage share: A panel analysis of advanced and developing economies. British Journal of Industrial Relations, 55(1):3–33.
Takahashi, H., Kato, M., Matsuura, M., Mobbs, D., Suhara, T., & Yoshiro Okubo. (2009). When Your Gain Is My Pain and Your. Science, 323(February), 937–939. http://doi.org/10.1126/science.1165604
Tansel, A. and Bodur, F. B. (2012). Wage inequality and returns to education in turkey: A quantile regression analysis. Review of Development Economics, 16(1):107–121.
Tao, Y. L., Chuang, H. L., & Lin, E. S. (2016). Compensation and performance in Major League Baseball: Evidence from salary dispersion and team performance. International Review of Economics and Finance, 43, 151–159. http://doi.org/10.1016/j.iref.2015.10.037
Tobin, J. (1972). Inflation and unemployment. The American Economic Review, 62(1/2):1–18.
Tobin, J. (1986). Inflation and unemployment in the shared economy. Journal of Comparative Economics, 10(4):460 – 463.
Vera, L. (2014). The simple post-Keynesian monetary policy model: An open economy approach. Review of Political Economy, 26(4):526–548.
Xu, Y., Liu, Y., & Lobo, G. J. (2016). Troubled by unequal pay rather than low pay: The incentive effects of a top management team pay gap. China Journal of Accounting Research, 9(2), 115–135. http://doi.org/10.1016/j.cjar.2016.01.001
Yu, K., van Kerm, P., and Zhang, J. (2005). Bayesian quantile regression: An application to the wage distribution in 1990s Britain. Sankhy¯a: The Indian Journal of Statistics (2003-2007), 67(2):359–377.
Published
2022-08-23
How to Cite
Praptiningsih, M. (2022). Why are wage shares worsening in a competitive economy? A brief review of pays equality and industrial politics. International Journal of Organizational Behavior and Policy, 1(1), 1-14. https://doi.org/10.9744/ijobp.1.1.1-14
Section
Articles
Copyright (c) 2022 Maria Praptiningsih
This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.
