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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 () (Dept. of Economic Statistics, Stockholm School of Economics)
Ljungqvist, Lars () (Dept. of Economic Statistics, Stockholm School of Economics)

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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 labor 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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Publisher Info
Paper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 638.

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Length: 38 pages
Date of creation: 16 Sep 2006
Date of revision:
Handle: RePEc:hhs:hastef:0638

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Related research
Keywords: Skill premium; employment; private sector; public sector; 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:
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    Other versions:
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  6. Sherwin Rosen, 1995. "Public Employment, Taxes and the Welfare State in Sweden," NBER Working Papers 5003, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  14. Richard B. Freeman & Lawrence F. Katz, 1995. "Differences and Changes in Wage Structures," NBER Books, National Bureau of Economic Research, Inc, number free95-1, September.
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    Other versions:
  16. Bergstrom, Villy & Panas, Epaminondas E, 1992. "How Robust Is the Capital-Skill Complementarity Hypothesis?," The Review of Economics and Statistics, MIT Press, vol. 74(3), pages 540-46, August. [Downloadable!] (restricted)
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    Other versions:
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