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RESULTS OF PRODUCT-PRICE STUDIES: Robustness to Industry Selection and Weighting 8

Posted by Connie R. Aponte on June 24, 2014 in RESULTS OF PRODUCT-PRICE STUDIES |

A Summary of “The Facts” Regarding Product-Prices and Mandated Wages

In light of the previous discussion about methodological robustness, here is a summary of “the facts” regarding product-price changes and the mandated wage changes. To organize the summary I use decades. HB do not break their analysis by time period, so I report one of their important findings in the 1980s.

The 1960s have been analyzed by BC and Leamer. The consensus finding seems to be a slight decline in the relative price of skill-intensive industries both within manufacturing and all sectors overall. These price changes suggest a mandated decline in wage inequality during this period.

The 1970s have been analyzed by BC, Leamer, and FH (1997). The consensus finding between BC and Leamer seems to be a moderate to substantial decline in the relative price of unskill-intensive industries both within manufacturing and all sectors overall. These price changes suggest a mandated rise in wage inequality during this period. In contrast, FH find that outsourcing’s effect on observed tfp mandated declining wage inequality during this period.
The 1980s have been analyzed by Bhagwati, LS, SS, FH (1995), Leamer, BC, FH (1997), and HB. The consistency checks of Bhagwati and LS and the descriptive facts of Leamer and BC all find no clear pattern of price changes across tradable industries during this period. The consistency check of SS does find evidence of a relative-price decline for unskill-intensive industries, but only after dummying out the computer industry. The mandated-wage regressions of Leamer and BC on manufacturing industries both find no clear pattern of mandated changes in wage inequality during this period. The structural estimates of HB corroborate this. FH (1995) find that the greater rise in domestic prices relative to import prices is consistent with their model of outsourcing, and FH (1997) find that changes in their narrow measure of outsourcing working through observed tfp (and also through product prices for some specifications) led to mandated rises in wage inequality. Both BC and HB find a rise in the relative price of skill-intensive nontradable industries during this period which mandated a rise in wage inequality.

The 1990s have been analyzed by Krueger. Based on a sample of one-third of manufacturing industries, both his consistency check and his mandated-wage regressions find a mandated rise in wage inequality from 1989 through 1994. However, evidence I presented in Table 1 for all manufacturing suggests, if anything, a mandated decline in wage inequality.

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