Essays on human capital and wage formation

Abstract: This thesis consists of three independent essays. In the first essay, I examine the implications of income redistribution on human capital accu-mulation and income inequality, presenting a model where human capital investment is indi-visible and agents differ in economic opportunity as well as intellectual ability. Further, indi-viduals respond to changes in the rate of redistributive taxation by altering their investment in educa-tion. It turns out that while redistributive policy is likely to be successful both in terms of effi-ciency and equity in low-tax societies, it may be highly detrimental in both respects if the rate of redistribution is already moderate or high. The second essay explores the implications of interregional redistributive taxation on interre-gional and interpersonal inequality and on social welfare. I introduce a model of two regions, which are unequal with respect to their employment opportunities. Moreover, residents are differentia-ted by their income and respond to changes in the rate of interregional redistribu-tion by ad-justing their labour supply. The analysis indicates that interregional redistribution need enhance neither interregional equity nor social welfare. Furthermore, increases in the rate of interregional redistribution are most likely to be beneficial in terms of equity as well as welfare if the degree of income dispersion is high between, but not within regions. The third essay is an empirical study of insider-outsider relations, wage formation and unemp-loyment persistence. Specifically, the paper aims at examining whether the degree of insider-outsider effects in wage and employment determination varies across labour unions, and discusses which eco-nomic factors might explain such differences. A model of membership rules and unemployment persistence is estimated using a unique panel data set on 16 Swedish blue-collar unions. While the evidence rejects the theory in aggregate regressions, the ten-dency to disen-franchise unemployed workers seems to be present in individual unions. More-over, the fin-dings suggest that the degree of insider behaviour varies considerably across unions. Particu-larly, insider-outsider effects seem to be stronger in unions whose members operate in shelte-red or expansionary industries, as well in unions with large memberships or large flows of temporary members. Two conclusions follow from the analysis. The first is that lacking support in favour of the insider-outsider hypothesis in aggregate regressions need not imply that insider-outsider effects are absent in wage and employment determination. Thus, insider-outsider models should preferably be estimated on union-specific, rather than aggre-gated data. The second conclusion is that cross-union variations in the aptitude for disenfran-chising the unemployed seem to emanate from differences in union-specific labour market conditions, such as the dependence on sales in export markets, the degree of competition from imported substitutes, industrial change and sector-specific fluctuations in labour demand.