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Skill Compression, Wage Differentials and Employment: Germany vs. the US

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  • Richard B. Freeman
  • Ronald Schettkat

Abstract

Germany's more compressed wage structure is taken by many analysts as the main cause of the German-US difference in job creation. We find that the US has a more dispersed level of skills than Germany but even adjusted for skills, Germany has a more compressed wage distribution than the US. The fact that jobless Germans have nearly the same skills as employed Germans and look more like average Americans than like low skilled Americans runs counter to the wage compression hypothesis. It suggests that the pay and employment experience of low skilled Americans is a poor counterfactual for assessing how reductions in pay might affect jobless Germans.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7610.

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Date of creation: Mar 2000
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Publication status: published as Oxford Economic Papers, Vol. 53, no. 3 (July 2001): 582-603
Handle: RePEc:nbr:nberwo:7610

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  1. Richard B. Freeman & Ronald Schettkat, 1999. "The Role of Wage and Skill Differences in US-German Employment Differences," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 219(1+2), pages 49-66, July.
  2. Horst Siebert, 1997. "Labor Market Rigidities: At the Root of Unemployment in Europe," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 11(3), pages 37-54, Summer.
  3. Nickell, Stephen & Bell, Brian, 1996. "Changes in the Distribution of Wages and Unemployment in OECD Countries," American Economic Review, American Economic Association, American Economic Association, vol. 86(2), pages 302-08, May.
  4. Stephen Nickell, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 11(3), pages 55-74, Summer.
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