Education and wage inequality before and during the fiscal crisis: A quantile regression analysis for Greece 2006–2016

The Greek labor market has undergone dramatic changes during the past 10 years. Wage inequality, especially at the bottom end of the earnings distribution, increased sharply. Simultaneously, and despite a massive emigration wave of mainly highly educated employees, the ratio of skilled to unskilled labor has further increased. In this paper, we analyze the relationship between education and the dispersion of male earnings, using Labor Force Survey data, for the years 2006 and 2016. We address both unobserved heterogeneity and potential endogeneity by using an instrumental variables estimator, designed for quantile regression modeling. Our best estimates suggest that the returns to education are higher at lower quantiles in the pre‐crisis period, while the opposite holds true in the post‐crisis period. It is shown that within‐group inequality, mainly among university graduates, has played a major role in these developments. Interestingly, our findings appear to be, in part, driven by changing returns to education across quantiles in the public sector. Increased demand for skilled workers, heterogeneous returns to education across different fields of study, and “ability” are proposed as potential underlying mechanisms.