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Capital deepening and wage differentials: Germany versus US

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  • Winfried Koeniger
  • Marco Leonardi

Abstract

"In flexible labour markets, capital increases the productivity of skilled workers more than that of unskilled workers, and in the US faster investment is associated with wider wage inequality. But labour market institutions that keep unskilled workers' wages high also imply that firms may find it profitable to invest so as to boost those workers' productivity. Our empirical analysis based on industry-level data confirms that a higher capital intensity in Germany is associated with smaller wage differentials and with a larger share of unskilled workers in the labour costs. Changes in capital-labour ratios during the 1980s reduced wage differentials by 5-8% in German industries, while in the US capital deepening in such industries as machinery and retail was accompanied by an increase of wage differentials larger than 7%." Copyright (c) CEPR, CES, MSH, 2007.

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Bibliographic Info

Article provided by CEPR & CES & MSH in its journal Economic Policy.

Volume (Year): 22 (2007)
Issue (Month): (01)
Pages: 71-116

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Handle: RePEc:bla:ecpoli:v:22:y:2007:i::p:71-116

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Cited by:
  1. Lorenzo Cappellari & Carlo Dell'Aringa & Marco Leonardi, 2011. "Temporary Employment, Job Flows and Productivity: A Tale of two Reforms," CESifo Working Paper Series 3520, CESifo Group Munich.
  2. Cingano, Federico & Leonardi, Marco & Messina, Julián & Pica, Giovanni, 2009. "The Effect of Employment Protection Legislation and Financial Market Imperfections on Investment: Evidence from a Firm-Level Panel of EU Countries," IZA Discussion Papers 4158, Institute for the Study of Labor (IZA).
  3. Ryosuke Okazawa, 2013. "Skill-biased technical change, educational choice, and labor market polarization: the U.S. versus Europe," Journal of Economic Inequality, Springer, vol. 11(3), pages 321-342, September.
  4. Zsofia Barany, 2011. "The minimum wage and inequality - the effects of education and technology," Sciences Po publications info:hdl:2441/eu4vqp9ompq, Sciences Po.
  5. Lorenzo Cappellari & Carlo Dell'Aringa & Marco Leonardi, 2010. "Flexible Employment, Job Flows and Labour Productivity," DISCE - Quaderni dell'Istituto di Economia dell'Impresa e del Lavoro ieil0060, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).

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