Higher education, employers’ monopsony power and the labour share in OECD countries

Daudey, Emilie and Decreuse, Bruno (2006): Higher education, employers’ monopsony power and the labour share in OECD countries.

Abstract

This paper examines the impact of higher education on the labour share. It is based on the following idea: as education offers adaptability skills, it should reduce employers’ monopsony power and, therefore, increase the labour share. This idea is developed in a two-sector model with search unemployment and wage competition between employers to attract/keep workers. Using panel data for eleven OECD countries, we show that the proportion of higher educated in the population has a significant positive effect on the labour share: typically, an increase of one standard deviation in higher education induces a three point increase in the labour share. The other determinants of the labour share are compatible with the theoretical model. They include the capital-output ratio (-), minimum to median wage ratio (+), union density (+). We also find that the unemployment rate has a negative and significant impact on the labour share, which, together with the positive impact of higher education, is incompatible with a three-factor model where factors are paid their marginal products.

• Item Type: MPRA Paper
• Language: English
• Keywords: Search frictions; Adaptability; Labour share; Macroeconomic panel data
• Subjects: J - Labor and Demographic Economics > J6 - Mobility, Unemployment, Vacancies, and Immigrant Workers > J60 - General; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E25 - Aggregate Factor Income Distribution; I - Health, Education, and Welfare > I2 - Education and Research Institutions > I20 - General

References

Acemoglu, D., 1999. Changes in unemployment and wage inequality: an alternative theory and some evidence. American Economic Review 89, 1259-1278 Acemoglu, D., 2003. Labor- and capital-augmenting technical change. Journal of European Economic Association 1, 1-37 Acemoglu, D., Shimer., R., 2000. Wage and technology dispersion. Review of Economic Studies 67, 585-607 Aghion, P., Howitt, P., Violante, G., 2002. General purpose technology and wage inequality. Journal of Economic Growth 7, 315-345 Albrecht, J., Vroman, S., 2002. A matching model with endogenous skill requirements. International Economic Review 43, 283-305 Barro, R.J., Lee, J.W., 2000. International data on educational attainment: updates and implications. NBER working paper no.7911 (http://www.nber.org/papers/w7911) Barry, F., Crafts, N., 1999. Some comparative aspects on Ireland’s economic transformation. Irish Banking Review, Autumn, 39-44 Bartel, A., Lichtenberg, F., 1987. The comparative advantage of educated workers in implementing new technology: some empirical evidence. Review of Economic and Statistics 69, 1-11 Blanchard, O.J., 1997. The medium run. Mimeo Blanchard, O.J., Giavazzi, F., 2003. Macroeconomic effects of regulation and deregulation on goods and labor markets. Quarterly Journal of Economics 118, 879-908 Blanchard, O.J., Wolfers, J., 1999. The role of shocks and institutions in the rise of European unemployment: the aggregate evidence. Dataset available on http://econwww. mit.edu/faculty/blanchar/harry_data/ Bentolila, S., Saint-Paul, G., 2003. Explaining movements in the labor share. Contributions to Macroeconomics 3, no.1 Brune, N., Garrett, G., Guisinger, A., Sorens, J., 2001. The political economy of capital account liberalization. Mimeo Burdett, K., Mortensen, D.T., 1998. Wage differentials, employer size, and unemployment. International Economic Review 39, 257-273 Checchi, D., García-Peñalosa, C., 2005. Labour market institutions and the personal distribution of income in the OECD. IZA Discussion Papers 1681, Institute for the Study of Labor (IZA) Charlot, O., Decreuse, B., Granier, P., 2005. Adaptability, productivity, and the incentives to schooling in a matching model. European Economic Review 49, 1007-1032 Daudey, E., 2005. The sharing of value-added: data sources. Mimeo Doms, M., Dunne, T., Troske, K., 1997. Workers, wages, and technology. Quaterly Journal of Economics 112, 253-290 26 Dunne, T., Schmitz, J., 1995. Wages, employment structure and employer-size wage premia: their relationship to advanced-technology usage at U.S manufacturing establishments. Economica 62, 89-107 De la Fuente, A., Domenech, R., 2000. Human capital in growth regressions: how much difference does data quality make? CEPR Discussion Paper no 2466 De la Fuente, A., Domenech, R., 2001. Educational attainment in the OECD, 1960-1995. Gollin, D., 2002. Getting income shares right. Journal of Political Ecomomy 110, 458-75 Gould, E., 2002. Rising wage inequality, comparative advantage, and the growing importance of general skills in the United States. Journal of Labor Economics 20, 105-147 Gould, E., Moav, O., Weinberg, B., 2001. Precautionnary demand for education, inequality and technological progress. Journal of Labor Economics 6, 285-316 Griliches, Z., 1969. Capital-skill complementarity. Review of Economics and Statistics 51, 465-468 Hamermesh, D., 1993. Labor demand. Princeton University Press Harrison, A.E., 2002. Has globalization eroded labor’s share? Some cross-country evidence. Mimeo, University of California Berkeley Krueger, D., Kumar, K., 2002. Skills-specific rather than general education: a reason for slow european growth? SIEPR discussion paper 0135 Layard, R., Nickell, S., 1999. Labor market institutions and economic performance. Handbook of Labor Economics 3C, 3029-3084 Lloyd-Ellis, H., 1999. Endogenous technological change and wage inequality. American Economic Review 89, 47-77 Manning, A., 2001. Monopsony in motion: imperfect labour market competition on the labour market. Princeton University Press Nelson, R.R., Phelps, E.P., 1966. Investment in humans, technological change, and economic growth. American Economic Review 56, 69-75 Nickell, S.,1997. Unemployment and labor market rigidities: Europe versus North America. Journal of Economic Perspectives 11, 55-74 Nicoletti, G., Scarpetta, S., Boylaud, O., 1999. Summary indicators of product market regulation with an extension to employment protection legislation. OECD Economics Department Working Papers, no. 226 Ortega, D., Rodríguez, F., 2002. Openness and factor shares. Mimeo Postel-Vinay, F., Robin, J.-M., 2002a. The distribution of earnings in an equilibrium search model with state-dependent offers and counteroffers. International Economic Review 43, 989-1016 Postel-Vinay, F., Robin, J.-M., 2002b. Wage dispersion with worker and employer heterogeneity. Econometrica 70, 2295-2350 Rodrik, D., 1997. Has globalization gone too far? Institute for International Economics Stigler, G., 1961. The Economics of information. Journal of Political Economy 69, 213-225 27 Wasmer, E., 2005. General vs specific skills in labor markets with search frictions and firing costs. American Economic Review, forthcoming