labormarketdiscrimination.Further,itisnecessarytoknow exactly what is the cause of an observed wagedifferential if a society decides it wants to eliminatethis differential (see Altonji and Blank 1999 for anextensive discussion of these issues).
2.5 Rents
Mostoftheabovediscussionproceededasifwagesaredetermined in markets that are similar in process tothe markets for melons and equities. The fact that thecommodities involved in labor markets are humanbeings requires that this ‘model’ be modified to someextent. Indeed, a set of institutions has emerged toprovide modification of the outcomes that wouldfollow from the unfettered equilibrium of the labormarket. Among these institutions is trade unionism,whichhas,overtimeandacrosssocieties,takenseveralforms. Government policy—both directly throughlegislation determining wages and indirectly throughits role as employer—also affects the wage structure.At one level the existence of institutions such astradeunionscreatesanotherwagedifferentialinwhichto be interested. In terms of Eqns. (1) and (2), being aunion member or working in which wage rates aredetermined by a collective bargaining contract meansthat a worker could earn a higher wage than anotherworker who is not so situated. In this case,
W
l
β
"
U
j
(
is the complete wage equation, including allobserved and unobserved variables, where
U
equalsone with union representation and equals zero other-wise. We do not, of course, observe everything abouttheworkersandhis
\
job,soweestimatetheequivalentof Eqn. (2),
W
l
b
"
U
j
(
How good the estimator
b
"
is of the ‘true’ effect of unionism
β
"
depends, as in the estimation of otherwage differentials, on the correlation of the omitteddeterminants of wages with
U
. In the US, the con-sensus estimate of the average effect of unionism onwages is about 15 percent (see Lewis 1986).A more important effect of unionism and govern-ment policy is their influence on other wage differ-entials. Much of the above discussion of the structureofwagesandofwagedifferentialsreflectedtheimplicitassumption that relative wages are, at least in the longrun, free to adjust to their market-clearing levels. Thisassumptionisallrightfortheanalysisoflabormarketsin the US, Japan, and (during the past 20 years) theUnited Kingdom, but there are serious problemsassociated with its application to most other indus-trialized countries in which bargaining coverage isover 75 percent (vs. 18 percent in the US and 22percentinJapanintheearly1990s).Totheextentthatunion and
\
or government policy attempts to preventincreases in the dispersion of earnings, wage differ-entials will not behave as neatly as the elementarytheory suggests. Instead, wage structures will besubjecttoagreatdealofinertia,andtheywilladjustatbest very slowly to shocks in demand.That the wage structure is slow to change is not
perse
abadthing.Indeed,Iwouldjoinmosteconomistsinagreeing that stability of the distribution of income isa good thing. The problem with such policies, how-ever,isthattheyoftenleadtoheavyunemploymentof those groups whose relative wages are protected.
See also:
Comparable Worth in Gender Studies;Income Distribution; Inequality; Inequality: Comp-arative Aspects; Labor Markets, Labor Movements,and Gender in Developing Nations; Labor Supply;Labor Unions; Labor, Division of; Sex Differences inPay; Wealth Distribution; Work, Sociology of
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with the words ‘Warfare is thegreatest affair of state, the basis of life and death, theWay (Tao) to survival or extinction. It must bethoroughly pondered and analyzed.’ These words,2,500 years later, still hold true: war has grown moredeadly, and more damaging to human existence.In the twentieth century alone, over 250 formallydeclared wars took over one 100 million lives. Un-declared wars, including political repression, commu-16350
Wage Differentials and Structure
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