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Wages and international factors’ mobility

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  • E. Podrecca
  • G. Rossini
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    Abstract

    The labor wage is the result of market variables and institutional settings of a country. In an open economy the determination of the market wage rate may be further affected by the extent of international mobility of both factors of production, labor and capital. Labor mobility is represented by migration in and out of a country, while capital mobility relates mostly to the extent of foreign direct investment (FDI) outflows and inflows. Migrants may represent an addition to the native labor force of a country and, in some cases, play a substitute role with respect to incumbent workers. FDI, in particular of the greenfield category, represents either a supplement to or a reduction of the domestic capital and, by and large, changes the opportunity set of a firm’s CEO with respect to the corresponding company operating in a closed economy. International factor mobility and domestic market variables, such as unemployment and productivity, interact in the wage setting process. In this paper, we derive a theoretical wage equation following the above premises, and perform pooled mean group estimates of its parameters on panel data for a group of 13 European countries with quarterly time observation over the period 1996-2007. We find that capital outflows have a robust negative effect on the wage rate. The effects of migration inflows, on the other hand, are not so clear-cut, as they can be nullor negative depending on the sample of countries considered.

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    Paper provided by Dipartimento Scienze Economiche, Universita' di Bologna in its series Working Papers with number wp826.

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    Date of creation: May 2012
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    Handle: RePEc:bol:bodewp:wp826

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    1. Alberto Alesina & Silvia Ardagna & Vincenzo Galasso, 2008. "The Euro and Structural Reforms," Working Papers 344, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    2. Abdurrahman Aydemir & George J. Borjas, 2010. "Attenuation Bias in Measuring the Wage Impact of Immigration," NBER Working Papers 16229, National Bureau of Economic Research, Inc.
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    7. L. Nunziata, 2002. "Institutions and Wage Determination: A Multi-Country Approach," Working Papers 433, Dipartimento Scienze Economiche, Universita' di Bologna.
    8. Sari Pekkala Kerr & William R. Kerr, 2011. "Economic Impacts of Immigration: A Survey," Finnish Economic Papers, Finnish Economic Association, vol. 24(1), pages 1-32, Spring.
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    10. David Hummels & Rasmus J?rgensen & Jakob Munch & Chong Xiang, 2014. "The Wage Effects of Offshoring: Evidence from Danish Matched Worker-Firm Data," American Economic Review, American Economic Association, vol. 104(6), pages 1597-1629, June.
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    12. Arjun Jayadev, 2007. "Capital account openness and the labour share of income," Cambridge Journal of Economics, Oxford University Press, vol. 31(3), pages 423-443, May.
    13. Timothy J. Hatton & Jeffrey G. Williamson, 2008. "Global Migration and the World Economy: Two Centuries of Policy and Performance," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582775, December.
    14. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
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    16. Eckel, Carsten & Egger, Hartmut, 2012. "The Dilemma of Labor Unions: Local Objectives vs. Global Bargaining," CEPR Discussion Papers 8784, C.E.P.R. Discussion Papers.
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