Thomas A. Pugel

Profitability, Concentration and the Interindustry Variation in Wages

THIS paper explores empirically the hypothesis that product market imperfections affect the earnings of labor in U.S. manufacturing industries. To the extent that labor shares in the excess return due to product market power, any policies designed to reduce this power may restrain or reduce wages in the affected industry. Thus workers may oppose antitrust action aimed at their own industry. Workers may oppose increased import competition that restrains market power not only because of potential unemployment but also because this increased competition indirectly reduces future wages. In addition, measures of the social loss due to product market power are understated if some portion of costs are actually return to market power. The transfer from consumers to producers, including labor as a factor of production, is also understated. Past results attempting to isolate empirically the relation between product market power, usually represented by product market concentration, and labor earnings have been mixed. This paper argues and demonstrates that economic profitability is a superior measure to concentration in summarizing the relative extent of product market power across industries. After developing a model of the division of the total excess return available to an industry between labor and capital, the paper presents empirical results that support the hypothesis that excess return or economic profitability is superior to product market concentration in explaining the interindustry variation in wages. The results indicate that labor receives 7% to 14% of the total excess return. For empirical analysis other determinants of interindustry wage variation must be controlled. The first section of the paper briefly discusses certain relevant labor force characteristics. The second section examines the relationship between wages and product market power. The third section discusses the data and presents empirical results. If possible, variables are measured as four-year averages over 1967-1970, to avoid single-year disturbances in the data and to approach long-run equilibrium observations. The final section presents concluding comments.

Further Evidence on Japanese Direct Investment in U.S. Manufacturing

This paper examines the cross-industry determinants of the importance of Japanese direct investment activities in U.S. manufacturing through an extension of the analysis in a recent article by Bruce Kogut and Sea Jin Chang (1991). The results indicate significant positive roles for Japanese technology and marketing assets. While U.S. technology assets are insignificant, a significant negative effect for U.S. marketing assets suggests that entry barriers related to marketing are more important than any use of foreign direct investment by Japanese firms to access these assets. In addition, U.S. government policies toward defense-oriented industries appear to act as a deterrent to Japanese direct investment. Copyright 1996 by MIT Press.

Endogenous technological change and international technology transfer in a Ricardian trade model

Abstract The study uses a Ricardian model (two goods, two countries, one factor) to analyze the interdependence of technology creation and the conditions of international technology transfer. Costly R&D, performed in a third sector in the home country, yields process-improving new technology, an intermediate public good. The level of R&D depends on the value of domestic and foreign royalties accruing to this sector. The levels of national welfare are related to various conditions of transfer, including no transfer, free transfer, globally optimal royalties, and nationally optimal royalties.

Keiretsu and Japanese direct investment in US manufacturing

Abstract This paper examines the determinants of the pattern of Japanese direct investment activity across US manufacturing industries, focusing on the role of inter-corporate linkages that define keiretsu groups of firms in Japan. Variables stressed in the standard FDI theory — variables representing possession of intangible assets, especially technology, and host-country (US) government policies — are significant explanators of both FDI by Japanese parent firms that are members of keiretsu in Japan and overall Japanese FDI. There is also a significant role for supplier connections to core electronics and automobile industries, a result consistent with the transfer of keiretsu supplier-buyer relationships to the United States.

Japan's industrial policy: Instruments, trends, and effects

Abstract This survey of the functioning and effects of Japanese industrial policy discusses the evolution of the policy in relation to changing economic conditions in Japan. It describes the specific instruments of the policy and the shifts in the extent of use and effectiveness of its instruments. It analyzes current efforts to promote high-technology industries and also efforts to assist the adjustment of structurally declining industries, some of which had been promoted by earlier industrial policy.

Foreign Investment in the U.S. Food-Marketing System: Discussion

The three papers presented at this session discuss several aspects of foreign direct investment (FDI) in food industries. My comments address one of these themes, the applicability of the theory of FDI to these industries. First, I present a synthesis of what is generally called the eclectic theory of FDI (Dunning). My approach differs somewhat in emphasis from Connor or Pagoulatos. Second, I review the studies of FDI in food and tobacco manufac-