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Wage Structure and Public Sector Employment: Sweden versus the United States 1970-2002

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Author Info
Domeij, David
Ljungqvist, Lars

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Abstract

Swedish census data and tax records reveal an astonishing wage compression; the Swedish skill premium fell by more than 30 percent between 1970 and 1990 while the U.S. skill premium, after an initial decline in the 1970s, rose by 8-10 percent. Since then both skill premia have increased by around 10 percentage points in 2002. Theories that equalize wages with marginal products can rationalize these disparate outcomes when we replace commonly used measures of total labour supplies by private sector employment. Our analysis suggests that the dramatic decline of the skill premium in Sweden is the result of an expanding public sector that today comprises roughly one third of the labor force, and that expansion has largely taken the form of drawing low-skilled workers into local government jobs that service the welfare state.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5921.

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Date of creation: Nov 2006
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Handle: RePEc:cpr:ceprdp:5921

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Related research
Keywords: employment; private sector; public sector; skill premium; Sweden; United States;

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Find related papers by JEL classification:
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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    Other versions:
  3. Matthew J. Lindquist, 2005. "Capital-Skill Complementarity and Inequality in Sweden," Scandinavian Journal of Economics, Blackwell Publishing, vol. 107(4), pages 711-735, December. [Downloadable!] (restricted)
    Other versions:
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    Other versions:
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    Other versions:
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