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Labor Market Institutions, Wages and Investment

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  • Jörn-Steffen Pischke

Abstract

Labor market institutions, via their effect on the wage structure, affect the investmentdecisions of firms in labor markets with frictions. This observation helps explain rising wageinequality in the US, but a relatively stable wage structure in Europe in the 1980s. Thesedifferent trends are the result of different investment decisions by firms for the jobs typicallyheld by less skilled workers. Firms in Europe have more incentives to invest in less skilledworkers, because minimum wages or union contracts mandate that relatively high wages haveto be paid to these workers. I report some empirical evidence for investments in training andphysical capital across the Atlantic, which is roughly in line with this theoretical reasoning.

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Bibliographic Info

Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0652.

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Date of creation: Sep 2004
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Handle: RePEc:cep:cepdps:dp0652

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Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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Keywords: Frictional labor markets; human capital; changes in wage inequality;

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  1. Nickell, Stephen & Bell, Brian, 1996. "Changes in the Distribution of Wages and Unemployment in OECD Countries," American Economic Review, American Economic Association, vol. 86(2), pages 302-08, May.
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  7. Stephen Nickell, 2003. "A picture of European unemployment: success and failure," LSE Research Online Documents on Economics 20039, London School of Economics and Political Science, LSE Library.
  8. repec:rus:hseeco:57408 is not listed on IDEAS
  9. Nickell, Stephen & Bell, Brian, 1995. "The Collapse in Demand for the Unskilled and Unemployment across the OECD," Oxford Review of Economic Policy, Oxford University Press, vol. 11(1), pages 40-62, Spring.
  10. Daron Acemoglu & Jorn-Steffen Pischke, 1999. "Minimum Wages and On-the-job Training," NBER Working Papers 7184, National Bureau of Economic Research, Inc.
  11. David Card & John E. DiNardo, 2002. "Skill-Biased Technological Change and Rising Wage Inequality: Some Problems and Puzzles," Journal of Labor Economics, University of Chicago Press, vol. 20(4), pages 733-783, October.
  12. Arulampalam, Wiji & Alison L Booth & Mark L Bryan, 2003. "Work-related Training and the New National Minimum Wage in Britain," Royal Economic Society Annual Conference 2003 9, Royal Economic Society.
  13. David Card & Francis Kramarz & Thomas Lemieux, 1995. "Changes in the Relative Structure of Wages and Employment: A Comparison of the United States, Canada, and France," Working Papers 734, Princeton University, Department of Economics, Industrial Relations Section..
  14. Daron Acemoglu & Joern-Steffen Pischke, 1998. "Beyond Becker: Training in Imperfect Labor Markets," Working papers 98-12, Massachusetts Institute of Technology (MIT), Department of Economics.
  15. Daron Acemoglu, 2002. "Cross-Country Inequality Trends," NBER Working Papers 8832, National Bureau of Economic Research, Inc.
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  17. Richard B. Freeman, 1995. "Are Your Wages Set in Beijing?," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 15-32, Summer.
  18. Alan B. Krueger & Jorn-Steffen Pischke, 1997. "Observations and Conjectures on the U.S. Employment Miracle," NBER Working Papers 6146, National Bureau of Economic Research, Inc.
  19. Arulampalam, Wiji & Booth, Alison L. & Bryan, Mark L., 2003. "Work-related training and the new National Minimum Wage in Britain -ISER Working Paper-," ISER Working Paper Series 2003-05, Institute for Social and Economic Research.
  20. Wiji Arulampalam & Alison L. Booth & Mark L. Bryan, 2004. "Training and the new minimum wage," Economic Journal, Royal Economic Society, vol. 114(494), pages C87-C94, 03.
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Cited by:
  1. Koeniger, Winfried & Leonardi, Marco, 2006. "Capital Deepening and Wage Differentials: Germany vs. US," IZA Discussion Papers 2065, Institute for the Study of Labor (IZA).
  2. Elisabetta Croci Angelini & Francesco Farina, 2007. "Technological choices under institutional constraints: measuring the impact on earnings dispersion," Department of Economic Policy, Finance and Development (DEPFID) University of Siena 006, Department of Economic Policy, Finance and Development (DEPFID), University of Siena.

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