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On the Determinants of the Skill Premium in Wages

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  • Timo Vesala

Abstract

We study the determinants of the skill premium in a matching model where wages are set in bilateral meetings between workers and firms. As a novelty, disagreeing parties do not have to separate immediately, but they may opt to wait for competing agents to arrive. This waiting option is disproportionately valuable for high-skilled workers because they are better protected against competition. This gives rise to a wage schedule with increasing skill premia. The model can be seen to capture, e.g., the consequences of market decentralization, or deunionization, and it may help explain the observed Europe-U.S. differences in wage structure.

Suggested Citation

  • Timo Vesala, 2008. "On the Determinants of the Skill Premium in Wages," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 164(2), pages 195-210, June.
    • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200806)164:2_195:otdots_2.0.tx_2-u
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation

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