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Why Didn't the College Premium Rise Everywhere? Employment Protection and On-the-Job Investment in Skills

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  • Matthias Doepke
  • Ruben Gaetani

Abstract

Why has the college wage premium risen rapidly in the United States since the 1980s, but not in European economies such as Germany? We argue that differences in employment protection can account for much of the gap. We develop a model where firms and workers make relationship-specific investments in skill accumulation. The incentive to invest is stronger when employment protection creates an expectation of long-lasting matches. We argue that changes in the economic environment have reduced relationship-specific investment for less-educated workers in the United States, but not for better-protected workers in Germany.

Suggested Citation

  • Matthias Doepke & Ruben Gaetani, 2020. "Why Didn't the College Premium Rise Everywhere? Employment Protection and On-the-Job Investment in Skills," NBER Working Papers 27331, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:27331
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    Cited by:

    1. Xiao Ma & Alejandro Nakab & Daniela Vidart, 2021. "Human Capital Investment and Development: The Role of On-the-job Training," Working papers 2021-10, University of Connecticut, Department of Economics, revised Aug 2022.
    2. Andrew Mountford & Jonathan Wadsworth, 2023. "‘Good jobs’, training and skilled immigration," Economica, London School of Economics and Political Science, vol. 90(359), pages 851-881, July.
    3. Diego Daruich & Sabrina Di Addario & Raffaele Saggio, 2023. "The Effects of Partial Employment Protection Reforms: Evidence from Italy," Review of Economic Studies, Oxford University Press, vol. 90(6), pages 2880-2942.
    4. Diego Daruich & Sabrina Di Addario & Raffaele Saggio, 2023. "The Effects of Partial Employment Protection Reforms: Evidence from Italy," Review of Economic Studies, Oxford University Press, vol. 90(6), pages 2880-2942.
    5. Xiao Ma & Alejandro Nakab & Daniela Vidart, 2022. "How do Workers Learn? Theory and Evidence on the Roots of Lifecycle Human Capital Accumulation," Working papers 2022-11, University of Connecticut, Department of Economics, revised Aug 2023.

    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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