Luận văn analysis of factors effecting labor incomes in hanoi

Vietnam’s capital with the population of about 3 millions, has rapidly grown... FOCUS AND DATA SOURCES OF THE STUDY... Graph 1: Methods for studying factors affect income Source:the auth

MINISTRY OF EDUCATION AND TRAINING

I I A N O I N A T I O N A L E C O N O M I C S U N I V E R S I T Y

* * * * * * * * * *

A n a l y s i s o f f a c t o r s e f f e c t i n g

l a b o r i n c o m e s i n H a n o i

A THESIS SUBM ITTED IN PARTIAL FULFILLM ENT

OF THE REQUIREM ENTS FO R OBTAINING THE D EG REE OF MASTER OF ARTS IN ECONOMICS OF DEVELOPMENT

EDUCATION AND TRAINING

T A B L E O F C O N TE N T S

A c k n o w l e d g e m e n t s 1

L is t o f a b b r e v ia t i o n s 2

T a b le o f C o n t e n t s 3

L is t o f t a b l e s 5

L is t o f G r a p h s 5

I n t r o d u c t i o n 6

1 R a t io n a le s o f t h e s t u d y 6

2 R e s e a r c h q u e s t i o n s 7

3 F o c u s a n d d a ta s o u r c e s o f th e s t u d y 8

3 1 F o c u s o f s t u d y 8

3 2 D a t a s o u r c e s 8

4 M e t h o d o l o g y 8

5 S tr u c tu r e o f t h e t h e s i s 9

C h a p te r 1: T h e o r e t ic a l F r a m e w o r k 10

1 1 B a s i s D e f i n i t i o n 10

1 2 S o u r c e o f i n c o m e 11

1 3 W a g e t h e o r i e s 11

1 3 1 T h e j u s t p r ic e w a g e 12

1 3 2 C la s s i c a l W a g e T h e o r i e s 13

1 3 3 P r o d u c t iv it y t h e o r i e s 15

1 3 4 B a r g a i n i n g T h e o r y o f W a g e s 2 0

1 3 5 O th e r T h e o r i e s 2 2

1 4 I n c o m e a n d w a g e d e t e r m in a n t s 2 6

1 5 L ite r a tu r e r e v i e w 2 9

C h a p te r 2 : D e s c r i p t i v e s t a t is t ic a l a n a ly s is f a c to r s a f f e c t i n g in c o m e in H a n o i 3 3

2 1 D e s c r ip t io n o f s a m p l in g a n d s u r v e y m e t h o d s 3 3

2 1 1 S a m p lin g f r a m e w o r k 3 3

Vietnam’s capital with the population of about 3 millions, has rapidly grown

3 FOCUS AND DATA SOURCES OF THE STUDY

Graph 1: Methods for studying factors affect income (Source:the author)

5 STRUCTURE OF THE THESIS

a f f e c t i n g H a n o i i n c o m e T h e c h a p te r u s e s e m p ir ic a l s t u d ie s q u a n t it a t iv e ly , in

w h i c h e c o n o m e t r i c m o d e l s a re a p p lie d

Chapter 4: is fo r c o n c l u s i o n s a n d p o l i c y im p li c a t io n s

• State o w n ersh ip

• T h e state is r esp o n sib le for m a n a g em en t fu n ctio n

• F in a n c in g for th e secto r operation c o m e s from state budget.

T h e n o n - s ta te se to r : is sector that out o f a b o v e - m en tio n ed sector.

1.2 S o u r c e o f in c o m e

I n c o m e fr o m w a g e s a n d s a la r ie s

In co m e from w a g e s and salaries in clu d e in c o m e from m ain jo b s receiv ed

o v er th e p ast 7 d a y s or m a in jo b s r ec e iv ed o v er th e p ast 12 m on ths B y d oin g

so , w e c o u ld a v o id o v erla p p in g b eca u se w e o n ly a sk ed th em in d etails their

a c tiv ities o v er th e p a st 12 m on th s i f th ese a c tiv ities w e re differen t from th o se

T o better u n d erstan ding in co m e determ ination, n o w I introduce th eories

on w a g e s and salaries b eca u se in co m e, in fact, has m a in ly soure from w a g e s

or salaries W e sh a ll d escrib e the m ore popular w a g e th eo ries that have thus

far b een ad v a n ced It is h o p ed that b y a d isc u ssio n o f su ch th eories, som e

"food for thought" w ill gen erate so m e n e w id eas that c o u ld cry sta llize intil a future w a g e th eo ry that w o u ld be a ccep ta b le to the em p lo y er, th e e m p lo y e e s, and the p u b lic.

1 3 1 T h e j u s t p r ic e w a g e

T h e j u s t p r i c e w a g e (a lso referred to as the ju st w a g e ) can b e d efin ed as

that w a g e w h ic h w ill perm it a person to liv e in a m anner com parable to his

jo b or station in life T hus, the m ore p rom in en t a p o sitio n a m an h o ld s, the high er w o u ld b e h is ju st w a g e

T h is th eo ry w a s o n e o f the earliest o f the w a g e th eo ries k n o w n to have a con tin u tin g in flu e n c e on so cie ty A lth o u g h the id ea o f th e ju st w a g e is

b e lie v e d to h a v e b e e n stated b y P lato ( 4 2 7 - 3 4 7 B C ) and A risto lte (3 8 4 -3 2 2

B C ), it w a s reesta b lish ed b y St.T h om as A q u in a s (1 2 2 5 - 1 2 7 4 ) and b eca m e the

g u id in g p h ilo so p h y o f h is era and a fe w hundred y ea rs thereater T he ju st price w a g e th eo ry ca m e about and ga in ed w id e a ccep ta n ce in th e M id d le ages

b eca u se an in crea sin g proportion o f w orkers (artisans and craftm en) had

a c h ie v ed th e right to s e ll their se r v ic e s for w a g e s A s greater num bers o f

w orkers o ffer ed th eir sk ills for sa le to poten tail em p lo y e r s, th e n e e d arose to determ ine th e p rice o f labor.

T he ju st p rice o f an article w a s the price that w a s adequate, but n o m ore than adequ ate, to c o v e r the produ ction c o st and b a se o n the a ccu sto m ed standards o f liv in g o f the producers con cern ed A ju st p rice m u st be adequate

to assure th e co n tin u ed a v a ila b ility o f g o o d s A ju st w a g e m u st assure the con tin u ed a v a ila b ility o f the ser v ic es o f in d ep en d en t craftm en H e n c e, w a g e s

sh ou ld be set at a le v e l that w o u ld m aintain th ese su p p lies It w a s not assu m ed that the ju st p rice and the ju st w a g e co u ld be determ in ed w ith any great degree o f a ccu racy, but th ey did serv e as a g u id e in th e co n d u ct o f ex ch a n g e

as w e ll as in rela tio n sh ip s a m o n g m en B a se d on th e id ea o f a co m m o m Father and b roth erhood o f m en , the ju st w a g e th eory a ssu m ed that m en should

b eh a v e as brothers and that n o on e sh ou ld take advan tage o f another.

T he strengths o f th e ju st w a g e th eory appear to b e tw o fo ld : (1 ) it assured

th e co n tin u ed a v a ila b ility o f the ser v ic es o f in d ep en d en t craftm en, and (2 ) the

e m p lo y e e w a s to be co n sid ered as a hum an b e in g and p a id as such, rather treated as a c o m m o d ity T hus, hum an d ig n ity , o n e o f th e m o st im portant factors in d eterm in in g w a g e s, w a s id en tified T h is has b e e n the m ajor

in flu e n c e o f th e ju st w a g e th eory o n m od ern -d ay w a g e theory.

T he w e a k n e ss e s o f the ju st price th eory appear to b e several: (1 ) an

e m p lo y e e w a s u n ab le to earn m ore w a g e than h is presen t station in life ca lled for; therefore, h e c o u ld n o t raise h im s e lf to a better p o sitio n in life , (2 ) the

th eory c o n flic te d w ith the realities o f an e c o n o m ic enterprises in w h ic h w a g e s are a c o st o f p rod u ction and h a v e to be earned through adequate productivity;

o th erw ise, th e ju st w a g e co u ld pu ll the em p lo y e r out o f b u sin ess, (3 ) the

th eory fa ile d to id e n tify m ore than o n e factor (the eth ica l q u estio n ) that is

in v o lv e d in w a g e d eterm ination, and (4 ) c o m m o n a ccep ta b le standards as to

w h a t is n eith er clea r nor agreed upon.

1 3 2 C la s s ic a l W a g e T h e o r ie s

From th e h e ig h t o f th e popularity o f that p rice w a g e th eory to 1870,

e c o n o m ists b e c a m e m u ch co n cern ed about w a g e as r e c o g n iz e d paym en ts for the se r v ic e s o f labor as a m ajor c o st o f produ ction T h e y th erefore b eg in to

th eorize w h a t fo r c es determ ine the prices for labor T w o w a g e th eories that appeared, and h a v e b e e n co n sid ered c la ssic a l th eo ries e v er sin ce, are the

su b sisten ce th eo ry and th e w a g e fund theory.

T h e S u b s is te n c e W a g e T h e o ry

T h is th eo ry , cred ited to D a v id R icard o(in 1 8 1 7 ), related w a g e s to

p op u lation , labor su p p ly , and su b sisten ce A c co r d in g to the theory, w a g e s in the lo n g run sh o u ld naturally be set at th e su b sisten ce le v e l (the w a g e that w a s

o n ly e n o u g h to p ro v id e fo o d , clo th in g , and shelter) b e c a u se th is w a s the c o st

o f p rod u cin g and m a in ta in in g the labor force T he th eo ry im p lied that i f there

is a tem porary sca rcity o f labor, th e w a g e s w ill ad v a n ce b e y o n d that o f strict

n e c e ssity (su b siste n c e ) and in turn w ill ca u se m ore w orkers to marry and produ ce fa m ilies; thus, the p op u lation w ill in crease T he increase in

p o p u la tio n w ill th en ca u se an o v ersu p p ly o f labour, w h ic h in turn lo w ers

w a g e s to a su b siste n c e le v e l.

T he su b siste n c e w a g e th eory has g en era lly b e e n proven invalid,

e sp e c ia lly in th o se industrial countries w h ere w a g e s co n tin u a lly are ab o v e the

su b siste n c e le v e l In industrial countries, w h ere th e avera g e w orker has for several d e c a d e s b e e n paid m ore than the su sisten ce le v e l, there appears to be

n o lo w e r in g o f w a g e s to th e su b sisten ce le v e l as a resu lt o f any pop ulation

in crea ses Furtherm ore, th is th eory w o u ld n o t be a ccep ta b le to labor in industrial co u n tries b eca u se its w orker e x p e c t m ore than su b siste n c e w a g e and

th erefore w o u ld probab ly refu se to w ork for m ere su b sisten ce O n the other hand, the su b siste n c e w a g e th eory presen tly appears to app ly to a lim ited

ex ten t in so m e o f th e n on in d u strialized cou ntries o f th e w orld.

W a g e F u n d T h e o r y

T he w a g e fund th eory, ad van ced b y John Stuart M ill in about 1 8 7 3 , held that em p lo y ers had a g iv e n am ount o f m o n ey a v a ila b le for w a g e s and each

e m p lo y e e 's share w a s d eterm ined b y d iv id in g the num ber o f w orkers into the

am ount in th e fund T hus, w a g e w o u ld rise or fa ll w ith flu ctu ation s in either the p o p u la tio n g ro w th or the s iz e o f the w a g e fund or both.

T he w a g e fund th eo ry w o u ld be un accep tab le to labor tod ay for several reason s First, th e w a g e s w e re the sam e for w orkers regardless o f a worker's

e ffic ie n c y , sen io rity , or jo b d ifficu lty S eco n d , i f m ore w orkers w a s hired,

ea ch w orker's proportion ate w a g e share w a s decreased Third, i f a w orker

w ere to g e t an in crea se w a g e , the num ber o f w orkers had to b e decreased

T hus, i f o n e w ork er w e re to g e t ahead, another w orker had to take a lo ss or a

g a in had to b e at h is e x p e n se E co n o m ists W illia m T hornton and Francis

W acker w e re v e ry critical o f th is theory, and in 1 8 6 9 M ill h im s e lf rescin d ed the w a g e fund doctrin e, w h ic h led to the d e c lin e o f the theory's in flu e n c e 1

A lth o u g h the w a g e fund th eory fa iled to m ak e clear w h a t determ ined the

am ount o f th e fund, there are several w a g e in c e n tiv e p la n s tod ay (S ca n lo n ,

R ucker, K a iser) that u tiliz e the co n cep t that a fix e d p ercen ta g e o f m o n ey is to

b e g iv e n to labor It w o u ld appear, as a result o f th is th eory, that p e o p le w ere

b e g in n in g to rea lize that so o n or late so m e m eth o d o f d eterm inin g an

eq u itable w a y o f sp littin g the e c o n o m ic p ie w o u ld b e n eed ed

In sum m ary, th e c la ssic a l w a g e th eories attem pted to ex p la in w a g e

d etem in a tio n o v e r th e lo n g term (su b siste n c e w a g e th eo ry ) and o v er the short term (w a g e fund th eory) In both th eories, th e w orker had p ractically no opportunity to raise h is status in life T he th eo ries m a y b e lo o k e d upon today

as h a v in g serv ed as a ca ta ly st to m ake p e o p le aw are o f th e n e e d for a sound

w a g e th eo ry and to stim u late th in k in g so that n e w e r th eo ries co u ld be advan ced.

1 3 3 P r o d u c t iv it y t h e o r ie s

P ro d u ctiv ity th eo ries concentrate o n th e relation sh ip b e tw e en w a g e s, prod u ctivity, and em p lo y m en t T he th eo ries u su a lly em p h a size the relation sh ip b e tw e e n w a g e s and produ ctivity T h e y attem pt to determ ine

1 C harles Brennan, W a g e A d m in istra tio n (H o m ew o o d , III.: Richard D Irw in, I n c ,1 9 5 9 ), chap.2, p i 5.

p ro d u ctiv ity o f labor and b ase w a g e paym en t o n th is v a lu e T he first idea o f the p ro d u ctiv ity th eo ry w e re p io n eered in about 182 6 b y Johann H einrich V o n

T hiinen, a G erm an e c o n o m ist, but th ey did n o t r e c e iv e m u ch attention

b eca u se th e su b siste n c e and w a g e fund th eo ries w ere th e v o g u e H o w ev er, by

198 9 th ese c la ss ic a l th eo ries had faded and tw o e c o n o m ists, John B a tes Clark (an A m erica n ) and P h ilip H enry W ick stea d (an E n g lish m a n ), are n o w

co n sid ered c h ie fly r esp o n sib le for a d v a n cin g th e m arginal produ ctivity.

M a r g in a l P r o d u c tiv ity T h e o ry

A c c o r d in g to th is th eory, the w a g e that is p a id to an e m p lo y e e sh ou ld be equal to th e extra v a lu e o f prod u ctivity that h e adds to total produ ction (the other factors o f p ro d u ctiv ity are a ssu m ed to rem ain constant) T he v a lu e o f

th e w orker's p ro d u ctio n is d e te m in ed b y th e return that th e em p lo y er can g et for th e w orker's prod u ctivity I f all factors o f p rod u ction are kept constant,

o n ly a certain am ou nt o f p rodu ction can be obtained F or ev ery n e w em p lo y e e hired, p ro d u ctio n w ill in crease up to a p o in t o f d im in ish in g returns w h en

p rod u ctivity per w ork er b e g in s to d eclin e T he em p lo y er can still contin ue to hire m ore w o rk ers as lo n g as the w a g e s he p a y s th e w ork er are le ss than the

in co m e h e g e ts from th e sa le o f the in creased produ ction H o w e v er , as the

em p lo y er co n tin u e s to hire m ore w orker, a p o in t is ev en tu a lly reached w here

th e last w orker hired ju st p rodu ces en o u g h prod u ction to p a y h is w a g e T his

la st w ork er is c a lle d the m arginal w orker, and th e in crea sed production attributed to h im is c a lle d the m arginal prod u ctivity o f labor; h en ce, the nam e,

th e m arginal p ro d u ctiv ity th eory o f w a g e s T he w a g e o f th e w orker is equal in

v a lu e to th e p ro d u ctio n attibuted to him , and h is w a g e determ in es the w a g e s

o f all w ork ers s in c e th e y all d o in g sim ilar w o rk and are a ssu m ed to be o f equal e ffic ie n c y

The concept of basing wages on productivity, as has been pointed out, is one of the early twentieth century theories Most of its development took

p la ce w ith in th e first third o f th is century H o w e v er , its th eory has contin ued

to exp an d and m o d ifie d , and to th is day is co n sid ered to b e an im portant

c o n cep t in d eterm in in g w a g e s P rom in en t contem p orary e co n o m ists,

in clu d in g Senaror P aul H D o u g la s and the late P ro fesso r Sum ner H S lich ter, are o n record as b e in g strong a d v o ca tes o f th e p ro d u ctiv ity th eo ry o f w a g es Slich ter h as said , "It is h ig h tim e that all groups in th e co m m u n ity rea lize that real w a g e s are tied to p rod u ctivity and that c o lle c tiv e bargain in g cannot raise real w a g e s faster than output per m an-hour".1 Senator D o u g la s , as a form er

p ro fesso r, m ea su red in so m e detail the in crease in real w a g e s as related to the

in crease in p ro d u ctiv ity H e p o in ted out that w h e n p ro d u ctiv ity per w orker

w a s static, real w a g e s w ere rela tiv ely co n sta n t.2

A lth o u g h the p ro d u ctiv ity th eory o f w a g e s is still co n sid ered b y m any to

b e proper and ju st b e c a u se w orkers are co m p en sa ted on th e b asis o f their

p rod u ctivity, there are a fe w d iffic u lties c o n n e c te d w ith th e theory.

First, it is m a n y tim es im p o ssib le to k n o w , m u ch le ss to m easure accu rately, th e am ou nt o f prod u ctivity that labor has s o le ly contributed I f a firm has in crea sed its p rod u ctivity a certain p ercen ta g e e a ch year, w h at part o f

th is can b e attributed to labor? E v ery o n e k n o w s that there are other factors

b e sid e s labor w h ic h a ffec t produ ctivity S u p p o se a ll p ro d u ctiv ity increases

h a v e b e e n due to te c h n o lo g y (or n e w m a ch in es) in w h ic h labor n o w actually

d o e s le s s w o rk and fin d s the w ork s easier? T o add to th e c o m p le x ity o f the

p roblem , can labor's p ro d u ctiv ity be accu rately m ea su red w h ile the other factors o f p ro d u ctio n are in constant state o f ch an ge?

1 Sum ner H S lich ter, "C om m ents on the S teel Report," R ev ie w o f E c o n o m ic s and S tatistics (N ovem ber, 1949), P 2 8 8

2 S ee Paul H D o u g la s, "The M o d e r n T ech iq ue o f M ass Production and Its R elation to w ages", P roceedin g o f the A cad em y o f P o litica l S c ie n c e (J u ly ,19 2 7 ), pp 17-42; Paul H D o u g la s, R eal W a g es in T he U nited States (N e w York: H o u g h to n -M ifflin C om pany, 1930).

S e c o n d , it is im portant to realize that factors other than labor effort

in flu en ce m arginal p ro d u ctiv ity o f labor W hat relative w e ig h t or im portance

sh ou ld be attach ed to other factors? A n d h o w d o y o u m easu re them ? W hat is

a fair and ju st rew ard that sh o u ld be g iv e n to ea ch o f th ese factors?

Third, w e h a v e inad eq uate in form ation o n m an y o f th e fo rces behind the

sc e n e s that e ffe c t th e factorers fo production For e x a m p le , do w e k n o w

en o u g h abou t th e su p p ly o f labor, the dem and for labor, th e m o b ility o f labor,

th e w a n ts o f bu yers (and m arkets), and the n eed s o f em p lo y ers?

L a stly , th e m arginal p rod u ctivity th eory is a w a g e theory for the

e c o n o m y as a w h o le , but for the in d ivid u al firm it is m ore a th eory o f

em p lo y m en t T h is is true b eca u se for the e c o n o m y as a w h o le , the quanlity fo labor is r ela tiv ely fix e d and w a g e s are the prim ary variab le F or the individual firm th e w a g e rate w h ic h m a y b e paid is set w ith in fairly narrow lim its by

co m p etitio n for labor in th e m arket, and e m p lo y m en t is the prim ary v a ria b le1

E v e n th o u g h th e m arginal prod u ctivity th eory h a s its lim ita tio n s, it has

p ro v ed u se fu l, e s p e c ia lly in agriculture and in m anufacturin g T he average

e m p lo y e e to d a y is b e g in n in g to rea lize that h ig h er w a g e s can b e earned o n ly through h ig h er p rod u ctivity T he th eory has a lso p ro v id ed in sig h t into so m e o f the other v a ria b les (e m p lo y m e n t) that are part o f w a g e determ ination Su ch an

un derstan ding has led to m o d ific a tio n o f w a g e d eterm ination and w a g e

p a y m en t p lan s A d escrip tio n o f on e th ese m o d ific a tio n fo llo w s

P r o d u c tiv e E f f ic ie n c y T h e o ry

T he p ro d u ctiv e e ffic ie n c y th eory o f w a g e s is a refin em en t o f the

m arginal p ro d u ctiv ity th eo ry in that ea ch w orker is g iv e n a ch a n ce to increase (or d ecrea se) h is w a g e acco rd in g to h is p ro d u ctiv e e ffic ie n c y as w e ll as his

1 A llan M.Cartter, T h eo ry o f w a g e s a n d E m p lo ym en t (H o m ew o o d , III.: R ichard D Irw in, In c.,1 9 5 9 ), p.45

prod u ctivity T h is th eo ry a ssu m es that w h en ev er a w orker is g iv e n the opportunity to in crea se produ ction through p erform ance standards, his earnings w ill in crea se a cco rd in g ly O n th e other hand, h is earnings w ill rem ain at an average or b e lo w the average le v e l i f h is e ffic ie n c y is b e lo w the

p erform ance standard adopted Im p lied in the a ssu m p tio n that a w orker w ill strive to in crea se h is w a g e , i f g iv e n the opportunity, is that he w ill be

p ro v id ed w ith th e m ea n s to increase h is prod u ction - standardized equipm ent,

m aterials, m eth o d s, to o l, w o rk in g environ m en t, etc.

M a n y con tem p orary e c o n o m ists and m a n a g em en t authorities b e lie v e that, b e c a u se o f its rea listic app lication, the p ro d u ctiv ity th eo ry is the m o st

co n stru ctiv e o f recen t w a g e th eories N e v e r th e le ss, oth er factors, so m e o f

w h ic h h a v e b e e n m en tio n ed in relation to m arginal prod u ctivity, m u st be

co n sid ered fundam en tal and cannot b e o v e r lo o k e d w h e n w a g e le v e ls and salaries are determ ined T h ey are as fo llo w s:

> W a g e rates and salaries differ in g eo g ra p h ica l areas accord in g to the standard o f liv in g and th e c o st o f liv in g

> W a g e s and salaries differ in in the sam e lo c a lity or b e tw e en lo c a litie s

a cco rd in g to natures o f sectors.

> W a g e s and salaries d iffer b etw een lo c a litie s a cco rd in g to variations in

th e sk ills and aptitudes o f w orkers p erfo rm in g sim ila r jo b s.

> W a g e s and salaries differ in th e sam e lo c a lity or in d ifferent lo ca lities

a cco rd in g to th e su p p ly and dem an d o f w orkers in the resp ectiv e

p r o fe ssio n s, secto rs or trades, as w e ll as a cco rd in g to their bargaining

p o w er.

> W a g e s and salaries d iffer acco rd in g to th e crea tiv en ess and

p r o g r e ssiv e n e ss o f m an agem en t, en g in eerin g , and m arketing forces.

In sum m ary, th e p ro d u ctiv e th eories o f w a g e s attem pted m a in ly to relate

w a g e s and sa la ries to p rod u ction perform ance T h ey are m ore analytical and

le ss d escrip tiv e than the earlier w a g e th eories T h ey so u g h t to p rovid e insigh t into fu n ctio n a l rela tio n sh ip s or general te n d en cie s rather than to provide

sp e c ific p rescrip tio n s that an em p lo y er co u ld u se in d a y -to -d a y w a g e and salary adm inistration In sp ite o f their d iffic u lty in accu rately m easuring and

eq uating w a g e s to p rodu ction, their fundam ental c o n c ep t has m an y ad v o ca tes

as e v id e n c e d b y th e large num bers o f w a g e -p a y m e n t p la n s that u tilize co n cep t (p rofit sharing, p ro g ress sharing, b o n u ses, and other in d ivid u al and group

em p lo y ers T h is c o n c e p t w a s s lo w to take h o ld b e c a u se it w a s introduced in

an era in w h ic h th e em p lo y e r had v ery strong b argaing p o w er B y 19 2 9 the situation w a s s lo w ly b e g in n in g to ch ange It w a s n o t until the 1930's,

h o w e v e r, that th e bargaing c o n cep t r ec e iv ed a real im p etu s w h e n the W agner

A ct, w h ic h g a v e w ork ers the right to o rg a n ize and bargain c o lle c tiv e ly , w a s

p a ssed T hus, th e w ork ers (and u n io n ) w ere g iv e n a real opportunity to add strength to th eir bargain p o w e r and to cau se th e bargaining th eory to b eco m e

a reality and to th is d ay rem ain as on e o f the lea d in g m eth o d s for determ ining

w a g e s.

T he b arg a in in g th eory o f w a g e s is b a sed u p o n th e assu m p tio n that there

is n o s in g le w a g e rate for a particular kind o f w ork Instead , there is a range o f

p o ssib le w a g e rates T he upper lim it o f th e range is d eterm in ed b y th e h ig h est

1 John D avid son , The B a r g a in in g T h eory o f W ages (N e w York: G p.Putnam 's S o n s, 1898).

w a g e the e m p lo y e r is w illin g to pay, and the lo w e r lim it is determ ined b y the

lo w e st w a g e s for w h ic h th e e m p lo y e e is w illin g to w ork T he em p lo y er and

th e w orkers bargain to determ in e the actual w a g e w ith in th e range that w ill be paid for th e w ork T h u s, w a g e s are d eterm ined b y th e relative eco n o m ic bargaining strength o f th e em p lo y er and th e e m p lo y e e s.

T he b argain in g th eo ry o f w a g e m a y be regarded as a m o d ific a tio n or an adaptation o f th e m arginal p rod u ctivity th eory b e c a u se it in clu d es the un ion and can still fu n ctio n in the p rod u ctivity th eory fram ew ork In ad van cin g the bargaining w a g e th eory, an effort is m ade to e x p la in w h at h ap pens in the labor m arket A c c o r d in g to th is theory, e m p lo y ers are bu yers o f labor, w h ich

is co n sid ered a c o m m o d ity W orkers are th e sellers For bargaing purposes, labor m ay b e c o n sid ered a com m od ity; but, in reality, labor is n ot a

c o m m o d ity that th e purchaser (em p lo y er) can put into reserve L abor cannot

b e separated from th e w orker for sp ecu la tiv e in v estm en t N e v e r th e le ss, buyers and seller s d o b argain in g to determ ine w h at w a g e the w orker is to receiv e

T he fin al w a g e that is argreed upon w ill d ep en d o n th e strengths o f the buyer and seller I f th e seller is strong, the w a g e w ill be h igh I f the buyer is strong,

th e w a g e w ill b e lo w I f both parties are equal in strength, th e w a g e w ill be

v ery c lo s e to w h a t the m arket determ ines th e w a g e to be.

B e fo r e le a v in g th e b argaining th eory o f w a g e , a w o rd sh ou ld be said about so m e o f its w e a k n e sse s Pure bargaining p o w e r as a determ inant o f

w a g e s h as th e inherent w e a k n e ss o f v ie w in g w a g e s in d ep en d en tly o f other price rela tio n sh ip s in the e co n o m y T he fact that th e bargain in g is o ver a w a g e

w ith in a range o f p o s s ib le w a g e s em p h a sizes that factors other than eco n o m ic are operating D e p e n d in g u p on w h o has th e m o st strength, ex trem ely h ig h or

ex trem ely lo w w a g e s can result It sh o u ld be rem em b ered that "strength" or

"might" is n o t sy n o n y m o u s w ith w h at is "right" E x trem ely h ig h w a g e s are not eq u itab le to th e p u b lic nor to the o w n ers E x trem ely lo w w a g e s are not

eq uitable to e m p lo y e e s It w o u ld appear that the d eterm ination o f w a g e s w ith all its determ inan ts and p ro b lem s is b e c o m in g so c o m p le x that c o lle c tiv e bargaining m a y b e in ad eq u ate to do the jo b in th e future For the past 2 0 years there h a v e b e e n con tin u a l rounds o f w a g e in crease w o n b y u n io n s S om e

p e o p le b e lie v e th is h as b e e n a cau se o f in fla tio n sin ce th e w a g e in creases have

n o t a lw a y s b e e n earned through high er p rodu ctivity O thers b e lie v e that union and m a n a g em en ts h a v e w o rk ed in c o llu s io n to p a ss a lo n g unearned co sts to

cu stom ers In c o lle c tiv e bargaining the p u b lic is n o t represented T his m eans that a corrupt or irresp o n sib le u n io n or m a n a g em en t c o u ld take advantage o f

th e p u b lic F in a lly , th e q u estio n sh ou ld be ask ed , "Has the c o lle c tiv e bargaining th eo ry m et th e test o f tim e?" "W ill there b e any real bargaining i f either th e e m p lo y e r or th e e m p lo y e e s u c c e e d in a c h ie v in g all or m o st o f the

c o lle c tiv e barganing?".

1 3 5 O t h e r T h e o r ie s

T here are m a n y oth er th eories about w a g e s that h a v e b e e n advanced from tim e to tim e S o m e o f th ese th eories h a v e o c c a s io n a lly b e e n u sed as a

b a sic for argum ents b y u n io n and m an agem en t in their w a g e n eg o tia tio n s T he

m ore prom in en t o f the old er and n ew er th eo ries are co n su m p tio n theory o f

w a g e s, th e la w o f su p p ly and dem and, and th e b eh a v io ra l sc ie n c e th eories o f

w a g e E a ch o f th ese w ill b e b riefly d iscu ssed

C o n s u m p tio n T h e o r y o f W a g es

T h is th eory, a lso k n o w n as the p u rch asin g p o w e r theory, had its

in cep tio n in 1915 w h e n H enry Ford, Sr., m ade the asto u n d in g ann ouncem ent that he w o u ld p a y a m in im u m w a g e o f $5 a day, or abou t 100 percent higher than th e p r e v a ilin g w a g e s T h is actio n w a s co n sid ered a radical ch an ge in

e m p lo y e r -e m p lo y e e relation s M an y em p lo y ers and e c o n o m ists d eem ed it the road to e c o n o m ic disaster, w h ile others heraded it as a n e w w a g e theory.

M r.Ford's P h ilo so p h y w a s that high er m o n ey w a g e s en co u ra g e greater

co n su m p tio n , in crea se th e dem and for m ore p rodu cts, and thereby lo w er

co m m o d ity p rices In 1 9 2 0 -1 9 2 1 (r e c e ssio n y ea rs), Ford in creased the

m in im u m w a g e to $ 6 per day and, during the d ep ressio n o f 1 9 3 0 , w h en m o st

e m p lo y ers in siste d o n cu ttin g w a g e s to m ak e p ro fits, th e Ford M otor

C om p a n y ra ised th e m in im u m w a g e s for 1 0 0 ,0 0 0 e m p lo y e e s to $8 per day

T his step w a s h erald ed as an introduction o f the eq u ity p rin cip le (a fair day's

w a g e ) b e c a u se Ford distributed h is profits as a current w a g e rather than defer

th em for p a y m en t as a "profit share".

M r.Ford's c o n su m p tio n theory w o n apprival a m o n g industrialists and

e co n o m ists L abor u n io n q u icly adop ted it as their o w n p h ilo so p h y It w as

a ccep ted o n th e v e ry sim p le su p p o sitio n that h ig h w a g e s w ill encourage greater co n su m p tio n , c a u sin g a larger in c o m e o f co n su m er and durable g o o d s,

th ereby creatin g m ore w o rk for labor, in crea sin g profits for em p lo y ers, and

lo w e rin g c o m m o d ity p rices.

T h e gen era l w e ll-b e in g or prosperity in any country is m easu red b y the

co n su m p tio n o f a ll g o o d s p rod u ced b y agriculture, m in in g , and industrial

d ev elo p m en t B u t, as c o n c lu d e d from th e bargaing th eo ry and produ ctive

e ffic ie n c y th eory, larger co n su m p tio n can b e in d u ced b y either o n e, tw o , or

a ll three o f th e fo llo w in g m eans: (1 ) in crea sin g in d ivid u al p rodu ctivity, (2 )

im p ro v in g p ro d u ctio n m eth o d s, or (3 ) in trod ucing sp e c ia liz e d m achinery.

L a w o f s u p p ly a n d D e m a n d

A n in v e stig a tio n o f th e labor m arket rev ea ls that jo b s requiring u n sk illed labor co m m a n d c o n sid era b ly lo w er w a g e s than sk ille d jo b s d o, b eca u se the

su p p ly o f u n sk ille d labor is a lw a y s proportion ately greater than the supp ly o f

sk ille d labor F rom th is sim p le com p arison , readers can read ily co n clu d e that

w a g e s are g o v e r n e d b y th e la w o f su p p ly and dem and I f jo b s are fe w and

su p p ly o f w o rk ers is p len tifu l, w a g e s w ill fall C o n v e r se ly , i f jo b s are p lentiful and there is a sh ortage o f w ork ers, w a g e s w ill rise In other w ord s, there is no static equilibrium

B e h a v io r a l S c ie n c e T h e o r ie s o f W a g es

In 1 9 6 0 s, there h a v e b een attem pts b y J a q u es,1 B e lc h e r ,2 and others to integrate th e fin d in g s o f th e b ehavioral scien tist (p sy c h o lo g is ts , so c io lo g ists,

a n th ro p o lo g ists) into the p ast and present e c o n o m ic w a g e th eories T h ese

n ew er th eo ries d eal w ith w a g e le v e ls o f firm s, internal w a g e structures,

in d ivid u al w a g e d eterm ination, and w a g e s as m o tiv a tio n

Jaques rela tes p a y to such factors as: the "tim e-span o f discretion" in the

jo b (len g th o f tim e b efo re an em p lo y ee's superior n e e d s to c h eck the

e m p lo y e e 's w o rk ), th e relationship b e tw e en e m p lo y e e perform ance and h is

e x p e c te d p erform an ce (a s determ ined b y an em p lo y e e 's e x p e cted grow th curve w h ic h ea ch e m p lo y e e is su p p o sed to h a v e, a cco rd in g to h is a g e), and to the e m p lo y e e 's sp e c ia l efforts (as m o tiv a ted th rough a m on etary rew ard) In short, Jaques' id ea s are b a sed u p on the p rin cip les o f th e p s y c h o lo g y o f hum an

b e in g and u p o n th e so c ia l norm s.

B e lc h e r has o ffer ed the fo llo w in g b eh avioral s c ie n c e im p lica tio n s that

h a v e a b earing o n w a g e determ ination:

a A b eh a v io ra l s c ie n c e theory o f w a g e le v e l o f th e firm w o u ld inclu de

th e fo ilw in g elem en ts:

> T h e in d u cem en ts-co n trib u tio n s u tility b alan ce.

> T h e labor m arket as a so cia l instution.

1 E lliott Jaques, E q u ita b le P a y m e n t (N e w York: John W ile y and Sons, Inc., 1961).

2 D avid w B elch er, "T o w a r d a B e h a v io r a l T heory o f W ages," Journal o f the acad em y o f M anagem ent

(august, 1 9 6 2 ),pp 10 2 -1 1 6

> U n io n s and e m p lo y e r s as a hold ers o f p o w e r and in flu en ce.

> N o n fin a n c ia l rew ards as substitutes for fin an cial rew ards.

b A b eh a v io ra l s c ie n c e theory o f internal w a g e structure w o u ld co n sist

o f th e fo llo w in g elem en ts:

> T h e fo rce o f so c ia l norm s and tradition.

> A c c o m m o d a tio n o f s o c io lo g ic a lly d iv erse labor m arkets.

> E m p lo y ers as w a g e -se ttin g institutions.

> T h e fo rce o f group p o w e r o n the internal w a g e structure.

c A b eh a v io ra l s c ie n c e th eory o f w a g e as m o tiv a tio n w o u ld deal w ith the fo llo w in g :

> B a sic m o tiv a tio n s c o m m o n to all in d iv id u a ls d eriv ed from b asic

in d iv id u a l n eed s and the c o m m o n culture.

> M o tiv e s d eriv ed from referen ce groups and vary in g am on g groups.

> C o m p le x ity o f m o tiv a tio n in operation, i.e , m ultifactor,

n o n lin ea rity in e ffe c t, the p o ssib ility that so m e factors are p o sitiv e

m o tiv a to rs and others are n eg a tiv e m otivators.

> P e r c e iv e d alternatives and their c o n seq u e n c es.

> M o tiv a tio n as a fu n ctio n o f o rgan ization d esig n

> N o n m o tiv a te d w ork.

In c o n c lu d in g th is sec tio n on w a g e th eo ries, it sh o u ld b e kep t in m in d that a ll th eo ries are sp ecu la tiv e T h ey are the b e lie fs , id ea s, or exp lan ation s o f variou s in d iv id u a ls o n w h a t appears to b e hap p en in g T h ey h a v e not b een

p ro v en th rou gh th e te st o f tim e; o th erw ise, th ey w o u ld b e co n sid ered law s

M ore research is n e e d e d to test th ese th eories in order to im p ro v e th em or to

fin d the actual la w s that are really in operation B efo re such la w s are con firm ed , th e researchers n e e d to fin d out m u ch m ore about the forces beh in d ea ch o f th e factors in v o lv e d in w a g e determ ination.

1 4 I n c o m e a n d w a g e d e te r m in a n ts

M a n y e c o n o m is ts b e lie v e that w e can better understand the factors derterm ining in c o m e and w a g e b y m o d ify in g th e hum an capital to include elem en ts b e y o n d th e traditional o n e s o f ed u ca tio n and o n - the - jo b training

In th is m u lti - factor approach to the in co m e and w a g e s, w e introduce three factors (M c C o n n e ll and B rue, 1995): (1 ) ability; (2 ) fa m ily background; and (3 ) discrim in ation

A b ilit y

A c c o r d in g to M cC o n n e ll and B rue (1 9 9 5 ), a b ility is broadly d efin ed as

“the p o w e r to d o ” and c o n sists o f so m eth in g separate and distin ct from the

sk ills g a in e d v ia form al ed u ca tio n or on - the - jo b training A b ility can

in flu e n c e w a g e s d irectly and indirectly, through its im p act o n the optim al

am ount and q u a lity o f hum an capital acquired.

D ir e c t im pact', th o se w h o co n sid er a direct e ffe c t o f a b ility o n w a g e s

argue that in a m arket e c o n o m y , p e o p le are rew arded in a general w a y

a cco rd in g to their a b ility to contribute to a firm ’s output O ther th in g s b ein g equal, th e greater o n e ’s ab ility, th e greater o n e ’s p ro d u ctiv ity and therefore

w a g e s.

I n d ir e c t im p a c t: perhaps o f greater sig n ific a n c e is the id ea that ab ility can

in flu e n c e w a g e s th rou gh its e ffe c t o n th e hum an capital in v estm en t d ecisio n

G reater a b ility en a b le s so m e p e o p le to translate any g iv e n in vestm en t in hum an capital into a larger increase in labour m arket p rod u ctivity and w a g e s

than others T h erefo re, th e rate o f return on ea ch year o f sc h o o lin g or training

w ill b e h ig h er for th o se w h o h a v e greater ability.

F a m ily b a c k g r o u n d

D iffe r e n c e s in fa m ily background - in d icated b y su ch variab les as fam ily

in c o m e , fath er’s and m o th er’s years ed u cation , father’s and m oth er’s sectors, num ber o f ch ild ren , and so forth - a lso in flu e n c e w a g e s b oth d irectly and

in d irectly (M c C o n n e ll and B ra e, 1 9 9 5 ).

D ir e c t effect: a direct e ffe c t o f fa m ily backgrou n d o n w a g e s o ften c o m e s

through e m p lo y m e n t o f fa m ily m em b ers in fa m ily - o w n e d b u sin esses In addition, fa m ily “ c o n n e c tio n ” m ay en a b le ch ild ren o f th e w e a lth y to gain

h igh er - p a y in g p o sitio n s in firm s, w h ic h are o w n e d or m a n a g ed by c lo se frien d s or b u sin e ss a sso c ia te s.

I n d ir e c t effect: T he role o f fa m ily back grou n d m a y b e o f greater

sig n ific a n c e in in flu e n c in g the d e c isio n le v e l o f form al ed u ca tio n to be obtained T h is e ffe c t c o m e s from both the d em an d for hum an capital and the

su p p ly p rice o f in v e stm e n t funds H ig h -in c o m e fa m ilie s ten d to p rovid e m ore

p r e sc h o o l ed u ca tio n for child ren, are m ore lik e ly to liv e in areas that have better s c h o o ls, and o ften stress the im portance o f h ig h er ed u ca tio n as a route tow ard a p r o fe ssio n a l carrier T heir child ren a lso m a y b e so c ia liz e d to think in term s o f atten d in g h igh er-q u ality edu cation al in stitu tion s A s a result, h igh -

in co m e parents o n avera g e h a v e greater dem and for hum an capital for their children.

W ea lth ier fa m ilie s m a y a lso m ore e a sily p ro v id e fin a n cia l a c ce ss to higher

ed u cation T h ey m a y b e able to fin an ce their ch ild ren ’ ed u ca tio n from annual

w a g e s or person al sa v in g s, incurring o n ly th e opportunity c o st o f forgone

g o o d s or interest L o w er - in co m e fa m ilie s m o st probab ly w ill n e e d to borrow

funds at h ig h in terest rates B e c a u se o f th ese differen t su p p ly c o st o f hum an capital, th e ch ild ren o f w ea lth ier parents w ill fin d it op tim al to obtain m ore form al e d u ca tio n than the ch ild ren o f poorer fa m ilies.

D is c r im in a t io n

E c o n o m ic d iscrim in a tio n e x ist w h e n tw o groups o f w orkers - w h o have the sam e a b ilitie s, ed u ca tio n , training and e x p erien ce - but o n e group, ca lled the first, sa y fe m a le or m in ority, are accord ed inferior treatm ent w ith respect

to hirin g, secto ra l a c c e s s, p rom otion , w a g e rate, or w o rk in g co n d itio n s N o te that d iscrim in a tio n m a y a lso take the form o f u n eq u al a c c e ss to form al

ed u cation , ap p ren ticesh ip , or o n - the - jo b training program s, ea ch o f w h ich

en h a n ces o n e ’s sto c k o f hum an capital A c co r d in g to M cC o n n e ll and B rue (1 9 9 5 ) , labour m arket d iscrim in a tio n can b e c la ss ifie d into four general typ es.

Wage discrimination m ean s that th e first group o f w orkers is paid le ss than th e se c o n d o n e for d o in g the sam e w ork M o re te ch n ica lly , w a g e

d iscrim in a tio n e x ists w h e n th e w a g e d ifferen tia ls are b a sed o n con siderations rather than p ro d u ctiv ity d ifferen tials.

Employment discrimination o ccu rs w h e n , other th in g s b e in g equal, the first group bears a disproportionate share o f th e burden o f u n em p loym en t.

arbitrarily restricted or prohib ited from en tering certain secto rs, e v e n th ough

th ey are as ca p a b le as th e sec o n d group o f perform in g th o se jo b s.

Human capital discrimination is in e v id e n c e w h e n th e first group has le ss

a c c e ss to p ro d u ctiv ity - in crea sin g opp ortunities su ch as form al sc h o o lin g or

on - the - jo b training.

T he first th ree c a te g o rie s o f d iscrim ination are freq u en tly d esig n a ted as

p ost-m ark et d iscrim in a tio n b eca u se th ey are en co u n tered after th e individual has en tered th e labou r m arket Sim ilarly, th e fourth ca teg o ry is ca lled pre -

m arket d iscrim in a tio n b eca u se it occu rs b efo re th e ind ividu al seek s

em p lo y m en t M o re o v e r, w a g e and sectoral d iscrim in a tio n contributed directly

to earning d ifferen tia ls w h ile hum an capital d iscrim in a tio n , b y red u cin g the quantity and q u ality o f ed u cation and training, further contributes to this

in equ ality.

1 5 L it e r a t u r e r e v ie w

U p to n o w , a lo t o f w o rk s h a v e stud ied abou t factors a ffec tin g in com e

T o m y k n o w le d g e , so m e stu d ies are as fo llo w s: B ru no, R a v a llio n and Squire (1 9 9 8 ); B lin d er and E sak i (1 9 7 8 ); B ish o p , F orm b y and T h istle (1 9 9 2 );

M ea n w h ile , M eh ta (2 0 0 0 ); H orrigon and M in c y (1 9 9 3 ); R y sc a v a g e (1 9 9 9 ) and G o ttsch a lk and D a n z ig e r (1 9 9 3 ); and A ig n e r and H e in s (1 9 6 7 ); A m y

Y c L iu (2 0 0 4 ).

B ru no, R a v a llio n and Squire (1 9 9 8 ) For 2 0 d e v e lo p in g countries over

th e p erio d 1 9 8 4 to 1 9 9 3 , th ese three authors reg ressed the rate o f ch an ge in the proportion o f th e p o p u la tio n liv in g o n le s s than $1 per person per day again st th e rate o f gro w th (ch a n g e in survey m ea n in c o m e ) and obtained a sta tistica lly sig n ific a n t reg ressio n c o e ffic ie n t o f 2 1 2 T h is m ea n s that a 1%-

p ercen tage p o in t in crea se in grow th (as m easu red b y su rv ey m ean in co m e) can b e e x p e c te d to prod u ce a 2 1 2 p ercent d ecrea se in the proportion o f

p e o p le liv in g in p o v erty ($1 per person per day) S o , stu d y in g o f B runo,

R a v a llio n and Sq uire sh o w s that in co m e w a s a ffec te d b y gro w n rate,

e sp e c ia lly in c o m e o f th e poor.

M a c r o e c o n o m ic im p acts on in co m e h a v e rem ained central in recent stu d ies, e s p e c ia lly research on b u sin ess c y c le e ffe c ts In a study o f in co m e

distribution b e tw e e n 1 9 4 7 and 1974, B lin d er and E saki (1 9 7 8 ) ex a m in ed the

e ffe c ts o f u n em p lo y m e n t, in flation , and a trend variable o n ea ch q u in tile’s share o f in c o m e T h e resu lts sh o w ed that, o n a v erage, an increase in the

u n em p lo y m e n t rate, c e te r is p a r ib u s , lead to an in crease in in c o m e inequality

w h ile in crea ses in th e in fla tio n rate lead to a d ecrease in in c o m e inequality

B lin d er and B la n k (1 9 8 5 ) later refin ed th is m o d e l ad d in g a non linear relation sh ip b e tw e e n in c o m e and the u n em p lo y m en t rate T h e y a lso separated

e x p e c te d and u n ex p ec te d inflation b eca u se th ey c o n sid ered unanticipated

in fla tio n as th e m a in sou rce o f inflation ary in c o m e redistribution F in ally,

in c o m e c h a n g e s w e re la g g e d a year in an attem pt to elim in a te the first order

au tocorrelation p rev a len t in the p reviou s m o d el (B la n k and B lin d er 1985, 12)

T h ey fo u n d that u n em p lo y m e n t had a large n e g a tiv e im p act on the low er

in c o m e q u in tiles, h o w e v e r ch a n g es in in fla tio n had m in im a l e ffe ct.

E d u ca tio n is o n e o f the lea st con troversial factors a ffec tin g in co m e distribution V irtu a lly e v ery study agrees that th e ed u ca tio n o f an ind ividu al is

o n e o f th e b e st determ inants o f h is or her in c o m e le v e l, and thus in equ ality in

ed u ca tio n a lso le a d s to in eq u ality in in co m e B ish o p , F orm b y and T histle (1 9 9 2 ), in their co m p a riso n o f variations in in c o m e in eq u a lity b e tw e en states, fou nd, e m p irica lly , that th e le v e l o f in co m e in eq u a lity w a s p o s itiv e ly related

to th e in eq u a lity in ed u ca tio n , w h ic h th ey m ea su red as th e standard d eviation

in y ea rs o f s c h o o lin g M ea n w h ile , M eh ta (2 0 0 0 ) created a general equilibrium

m o d el c o m p o s e d s o le ly o f w orkers and m anagers D iv id in g the e ffe c ts from the q u ality o f e d u ca tio n into tw o parts, gen eral p ro d u ctiv ity e ffe c ts and

im p acts from c h a n g e s in th e trainability o f w ork ers, M eh ta co n clu d ed that

ov era ll in c o m e in eq u a lity in crea ses as the qu ality o f ed u ca tio n decreases In another stud y, H o rrig o n and M in c y (1 9 9 3 ) estim a ted that p e o p le w ith c o lle g e

d eg rees r e c e iv e d , o n average, earn ings o v er o n e and h a lf tim es that o f p eo p le

w h o had o n ly a d ip lo m a and o v er tw ic e as m u ch as th o se w h o did not

graduate from h ig h s c h o o l T he in equ ality in ed u ca tio n le v e l w ill on ly

in crease in th e future as th e dem and for sk ille d labor in crea ses and as m ore and m ore p e o p le graduate from c o lle g e

T h e fin al set o f factors that is o ften id en tified as a ca u se o f shifts in

in c o m e is th e ch a n g in g d em ograp h ics Increased rates o f d iv o rce and greater num bers o f sin g le m oth ers h a v e greatly a ffected the distribu tion o f in com e In their inq uiries into in c o m e distribution ch a n g es, R y sc a v a g e (1 9 9 9 ) and

G o ttsch a lk and D a n z ig e r (1 9 9 3 ) both fou nd that c h a n g e s in fa m ily siz e and structure in crea sed in c o m e in eq u ality o v er th e p a st fe w d eca d es A g e distribution is another d em ograp h ic issu e w h ic h m a y a ffe c t in c o m e inequality

A s Jenkins p o in ts out, “w ith greater lo n g e v ity and m aturing o f cohorts b o m in

th e ‘baby b o o m ’, there are g ro w in g num bers o f eld erly p e o p le , and few er

y o u n g p e o p le ” (1 9 9 5 , 3 2 ) W ith m ore o ld p e o p le , w h o o n average earn lo w er

in c o m e s, there w ill u n d ou b ted ly be large ch a n g es in in c o m e distribution

E m p irica lly , A ig n e r and H e in s (1 9 6 7 ), in their cro ss-sta te reg ressio n an alysis

o f the d eterm inan ts o f in c o m e in equ ality, fo u n d that an in crea se in the m ean

a ge o f the p o p u la tio n lea d s to a m ore unequal distribu tion o f in co m e A final factor in clu d ed in th e A ig n e r and H ein s study is th e urban/rural split o f the

p op u lation It has b e e n ty p ic a lly fou n d in c o m e in urban is greater than rural.

A m y Y c L iu at her " p a p er S e c to r a l g e n d e r w a g e g a p in V ietn am " in

2 0 0 4 F o c u s in g on w a g e earners, th is paper puts th e h y p o th esis under

em p irical sc m tin y b y a p p ly in g the d e c o m p o sitio n tech n iq u e o f A p p leto n et al (1 9 9 9 ) T heir d e c o m p o sitio n m eth od incorporates th e im p act o f sectoral

lo ca tio n that is n o t a cco u n ted for by c o n v en tio n a l d e c o m p o sitio n m eth od s In addition, it o v e r c o m e s th e in d ex num ber prob lem o f B ro w n , M o o n et al (1 9 8 0 ) A carefu l a n a ly sis o f the factors contribu ting to th e sectoral gender

w a g e gap is im portant, n o t o n ly b eca u se it a ffec ts earn in gs, but a lso b ecau se

o f its p o lic y im p lic a tio n s A n understanding o f th e im p lica tio n s o f w ith in

-secto r and b e tw e e n -se c to r d ifferen ces o n g en d er d iffe re n c e s in earnings m ay

h elp to m in im iz e th e un d esirab le im pact o f d o w n siz in g o n w o m e n s eco n o m ic

p o sitio n T h is paper set o u t to an alyse the role o f sectoral lo ca tio n in gender earn ings d iffe r e n c e s as V ietn a m u n d erg o es d o w n siz in g in th e state sector T he sectoral a sp ect o f g en d er earnings d ifferen tia ls h as sig n ifica n t p o lic y

im p lica tio n s as a further reduction in state e m p lo y m en t is prop osed

T h is is n o t a c o m p le te list o f factors w h ic h h a v e b e e n fou n d to have an

im p act o n in c o m e O v era ll, there is am p le p reced en t in stu d y in g factors w h ich

im p act in c o m e distribution.

In c o n c lu d in g , th is chapter introd uces so m e b a sic d ifm itio n s, th eories and literature r e v ie w s o n in co m e T h ey h a v e g iv e n d ifferen t m eth o d s to study factors a ffe c t in c o m e lik e d e c o m p o sitio n m eth o d , statistical an alysis,

E c o n o m e tr ic T h e y are fundam ental m eth o d s for stu d y in g in n e x t chapters.

T h e author u s e s data c o lle c te d by h im se lf T h e su rv ey sam p le w a s

s e le c te d to b e rep rsentative o f H an oi labors force.

S u r v e y e d p e o p le : are in d ivid u als w h o are o f 1 5 -5 5 a ge for fem a le and

o f 1 5 -6 0 a g e for m a le, liv in g and w o rk in g w ith their o w n h o u sin g in H anoi inner districts for at lea st 1 year and intend to b e lo n g -term inhabitance in

H a n o i.

T h e s a m p le s iz e w a s set at 2 0 0 h o u se h o ld s s e le c te d from 7 districts (H o a n K ie m , B a D in h , H ai B a Trung, C au G iay, T ay H o , T hanh X uan, D o n g

D a ) in H a n o i but e x c lu d in g tw o n e w distrist (L o n g B ie n and H o a n g M ai)

b eca u se th ey are n e w districts, h e n c e , m a y b e not b e in g reprsentative for inner districts o f H an oi.

S a m p le : is ran d om ly s e le c te d w ith the ratio o f 50% w o rk in g for the state secto r and th e rest for the n on -state sector ap p lied for all o f 7 districts E very

3 0 p e o p le from e a ch district is su rv ey ed b y the fo llo w in g w ay:

W ards o f th e d istrict are arranged in alphabet order and num bered from 1th to the ordinal num ber correlative to the last w ard T he date starting for

in terv iew in o n e d istrict is a lso the ordinal num ber o f th e w ard selected T he

m o d el is a p p lied w ith s e le c te d groups o f on e ward A fter in terv iew groups are sele c te d , a starting p o in t o f th e in terv iew is set up fo llo w in g th ese steps: