Full text: The political economy of income distribution: industry level evidence from Austria (156)

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Sector-level data allows to differentiate between the two processes and has thereby an 
advantage over country-level data. Bassanini and Manfredi (2012) fail to find a robust effect 
of sector specific import prices on the wage in all but one specification and do not obtain a 
significant coefficient for import penetration at all. They argue that the negative effect 
confirmed by country level studies result from a process of reallocation of production 
towards sectors with lower wage share brought about by increasing competition from abroad 
and confirm their hypothesis by additional estimations of low and high wage share sectors’ 
share in total value added. Thereby they refer to the between component of the aggregate 
wage share. They do find, however, a negative impact of offshoring, especially in high wage 
share countries, while FDI appears to be insignificant in their analysis. The negative effect of 
offshoring is furthermore confirmed by Lin and Tomaskovic-Devey (2013) for the US.  
Research in the tradition of political economy confirm these results, especially with 
respect to trade openness variables (Jayadev, 2007; Stockhammer, 2015), as well as 
intermediate import penetration and outward FDI for within sector wage shares in Austria 
(Onaran, 2011, 2012).  
Interestingly, there is a difference regarding the interpretation of the results depending 
on the country group used. The IMF (2007) and the EC (2007) focus on the aggregated 
country-level wage share in advanced countries and interpret their findings as consistent with 
the traditional trade theory based on the Stolper-Samuelson Theorem, as well as skill biased 
trade induced technological change argument of the new trade theories. Bassanini and 
Manfredi (2012) include both rich and (formerly) poor OECD countries and find the effect of 
intermediate imports to be negative for rich and insignificant for poor countries. However, 
the findings in the political economy literature (e.g. Rodrik, 1997; Harrison, 2002; Onaran, 
2009; Jayadev, 2007; Stockhammer, 2015), which cover also the developing countries, 
indicate that globalization has a negative effect on the wage share in the developing as well as 
developed countries; hence point at a contradiction to the predictions of the traditional trade 
theory.  
Regarding the effects of the changes in the bargaining power of labour, the IMF 
(2007) and the EC (2007) both use standard indices for labour market institutions such as 
union density, employment protection legislation, unemployment benefit generosity and the 
tax wedge designed to measure labour market rigidities rather than to measure the bargaining 
power of labour (Stockhammer, 2015). EC (2007) finds that while minimum wages have a
        

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