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Skills and Wage Inequality in Greece: Evidence from Matched Employer-Employee Data, 1995-2002

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Author Info
Rebekka Christopoulou and Theodora Kosma

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Abstract

This paper examines changes in the Greek wage distribution over 1995-2002 and the role of skill in these changes. The methodology adopted is the Machado-Mata counterfactual decomposition, which separates the part of wage changes that is due to job and workers' characteristics (composition effects) from the part due to the returns to these characteristics (price effects). We find that mean wages have not increased substantially, but wage inequality has, mostly at the upper tail of the distribution. The role of skill has been decisive. Falling tenure levels at all but the very high wage deciles, and rising education across the board, have carried much of the inequality increasing influence of overall composition effects. Although to a lesser extent, changes in the returns to skill have contributed to inequality by forming a U-shaped pattern along the wage distribution. This pattern is further reinforced when price-effects of skill are added together with the composition effect of tenure to produce the share of skill-effects that is responsive to market forces. Drawing on this evidence, we make a case for the routinization hypothesis.

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Paper provided by Hellenic Observatory, LSE in its series GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe with number 26.

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Date of creation: May 2009
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Handle: RePEc:hel:greese:26

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Keywords: Returns to skill; Wage inequality; Quantile regression.;

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  1. Thomas Lemieux, 2006. "Increasing Residual Wage Inequality: Composition Effects, Noisy Data, or Rising Demand for Skill?," American Economic Review, American Economic Association, vol. 96(3), pages 461-498, June. [Downloadable!]
  2. Panos Tsakloglou & Ioannis Cholezas, 2005. "Education and Inequality in Greece," IZA Discussion Papers 1582, Institute for the Study of Labor (IZA). [Downloadable!]
  3. Martins, Pedro S. & Pereira, Pedro T., 2004. "Does education reduce wage inequality? Quantile regression evidence from 16 countries," Labour Economics, Elsevier, vol. 11(3), pages 355-371, June. [Downloadable!] (restricted)
  4. Daron Acemoglu, 2002. "Technical Change, Inequality, and the Labor Market," Journal of Economic Literature, American Economic Association, vol. 40(1), pages 7-72, March. [Downloadable!] (restricted)
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  5. Paul Krugman, 1994. "Past and prospective causes of high unemployment," Proceedings, Federal Reserve Bank of Kansas City, issue Jan, pages 49-98.
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  6. David Autor & Frank Levy & Richard Murnane, 2003. "The skill content of recent technological change: an empirical exploration," Proceedings, Federal Reserve Bank of San Francisco, issue Nov. [Downloadable!]
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  7. Bergmann, Barbara R, 1971. "The Effect on White Incomes of Discrimination in Employment," Journal of Political Economy, University of Chicago Press, vol. 79(2), pages 294-313, March-Apr. [Downloadable!] (restricted)
  8. Blanchard, Olivier & Wolfers, Justin, 2000. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," Economic Journal, Royal Economic Society, vol. 110(462), pages C1-33, March. [Downloadable!] (restricted)
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  9. José Mata & José A. F. Machado, 2005. "Counterfactual decomposition of changes in wage distributions using quantile regression," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(4), pages 445-465. [Downloadable!]
  10. James Albrecht & Anders Bjorklund & Susan Vroman, 2003. "Is There a Glass Ceiling in Sweden?," Journal of Labor Economics, University of Chicago Press, vol. 21(1), pages 145-177, January. [Downloadable!]
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  11. Abowd, John M. & Kramarz, Francis, 1999. "The analysis of labor markets using matched employer-employee data," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 40, pages 2629-2710 Elsevier. [Downloadable!] (restricted)
  12. Juhn, Chinhui & Murphy, Kevin M & Pierce, Brooks, 1993. "Wage Inequality and the Rise in Returns to Skill," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 410-42, June. [Downloadable!] (restricted)
  13. Barbara R. Bergmann, 1974. "Occupational Segregation, Wages and Profits When Employers Discriminate by Race or Sex," Eastern Economic Journal, Eastern Economic Association, vol. 1(2), pages 103-110, April. [Downloadable!]
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