Lohnspreizung und Effizienz
AbstractWage Dispersion and Efficiency. It is often assumed that markets generate efficient allocations, but these are not necessarily fair. The widening of wage differentials that is currently observed is interpreted in this manner: Skill-biased technological progress increases demand for skilled work and makes unskilled labor redundant. Increasing wage dispersion is seen as a market response to an increased scarcity of skilled workers. While wage differentials are widening, we observe at the same time increasing over-qualification in all segments of the labor market. This suggests an increasing abundance of skilled workers, rather than shortage. This paper suggest an explanation for the joint occurrence of wage dispersion and over-qualification. Wage dispersion is brought about by the wage-setting policies of firms that respond to an increased importance of skill differences among workers. The widening wage differentials render the acquisition of skills more rewarding. As a result, wage dispersion and over-qualification increase together. Both are inefficient. Policies that bring wage differentials closer to compensating differentials will increase both efficiency and fairness, quite in line with the classical position taken by Adam Smith on these issues.
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Bibliographic InfoPaper provided by University of Munich, Department of Economics in its series Discussion Papers in Economics with number 2117.
Date of creation: 14 Feb 2008
Date of revision:
Wage structure; wage dispersion; wage compression; over-qualification; over-education; fairness; efficiency; wage competition; job competition; Reder competition; Adam Smith; Alfred Marshall; compensating differentials; job rents; skill-biased technological progess; heterogeneity-biased technological progress;
Find related papers by JEL classification:
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
- J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
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