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Scott Ferrari, Alexa Ricci, Robert Mitchell
A country’s wage structure depends on multiple variables such as if their economy is going through an expansion period, the type of industries they specialize in, trade policies, policies based on gender discrimination, and the level of educational attainment throughout the country. This chapter will analyze the factors that affect inter-industry wage differentials, gender wage differentials, CEO compensation, the effects of immigration, education and skills across different countries. Making these international comparisons will help explain why workers experience different degrees of wage dispersion and it also provides a reason as to why wages may be more polarized in certain countries. This paper will examine the existence and extent of wage inequality in different countries.
Review Of Literature
Inter-Industry Wage Differentials
Wage disparities still exist amongst workers with similar characteristics employed in firms that operate in different sectors of the economy. A common belief is that industry affiliation, trade openness, and capital openness are the main factors that cause wage differentials in a country (Wang,Milner, and Scheffel, 404). Other causes are different industry-level productivity performance, compensation for unmeasured working conditions, and matching highly competent workers to high wage firms (Papapetrou, 51). Wage structure is subject to change across any growing economy over time and wage inequality is bound to occur. The cause of this dispersion is to be inspected along with the degree of its effect on different industries.
Wang, Milner and Scheffel examined Chinese household survey data; the individual wages were regressed against worker-specific and job-related characteristics to yield an estimated industry wage premium. This premium measures the part of wage variation explained by industry affiliation in China. The second stage of their study was to use the estimated industry premium and pool it across previous years and have it be regressed on various globalization variables at the industry level. The theoretical predictions and results are shown below.
When a country is unskilled labor abundant, the increased specialization in their comparative advantage raises the relative demand and wages of unskilled labor in all industries (Wang,Milner, and Scheffel, 406). An increase in exports means that more labor would be required by firms to reach their required output for the specialized good. A rising relative wage for unskilled workers caused by trade expansion forces these unskilled labor-intensive industries to raise their wages. An impactful factor that explains wage inequality across industries is trade-induced productivity changes, along with technological changes (Wang,Milner, and Scheffel, 407). This causes an increase in output capabilities which can raise wages for workers due to higher productivity. Trading turns out to be an impactful factor on wages in China.