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The Changing Structure of Wages in the US and Germany: What Explains the Differences?

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  • Paul Beaudry
  • David Green

Abstract

Over the last twenty years the wage-education relationships in the US and Germany have evolved very differently, while the education composition of employment has evolved in a surprisingly parallel fashion. In this paper, we propose and test an explanation to these conflicting patterns. The model we present has two important elements: (1) technological change arises in the form of an alternative production process as opposed to being in the factor augmenting form, which renders technological adoption endogenous, (2) aggregate production depends on three factors (physical capital, human capital and labor). Based on this framework, we show why imbalances in the accumulation of human versus physical capital will be especially detrimental to low skill workers when the new technology is skill-biased and exhibits capital-skill complementarity. Using matched files from the PSID (US) and the GSOEP (Germany), we demonstrate how factor movements within these countries are associated with wage changes that are strongly supportive of our endogenous technological adoption model. Our conclusion is that the difference in the US and German experiences appear driven by the US having under-accumulated physical capital relative human capital over the 1979-96 period, while Germany accumulated factors in a more balanced manner.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7697.

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Date of creation: May 2000
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Publication status: published as Beaudry, Paul and David A. Green. "Wages And Employment In The United States And Germany: What Explains The Difference?," American Economic Review, 2003, v93(3,Jun), 573-602.
Handle: RePEc:nbr:nberwo:7697

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  1. Krueger, A. & Pischke, J.S., 1997. "Observations and Conjectures on the U.S. Employment Miracle," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 97-15, Massachusetts Institute of Technology (MIT), Department of Economics.
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  7. Claudia Goldin & Lawrence F. Katz, 1998. "The Origins Of Technology-Skill Complementarity," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 113(3), pages 693-732, August.
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  9. Moulton, Brent R., 1986. "Random group effects and the precision of regression estimates," Journal of Econometrics, Elsevier, Elsevier, vol. 32(3), pages 385-397, August.
  10. 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.
  11. Acemoglu, Daron, 2002. "Directed Technical Change," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 69(4), pages 781-809, October.
  12. repec:fth:prinin:390 is not listed on IDEAS
  13. Timothy F. Bresnahan & Erik Brynjolfsson & Lorin M. Hitt, 1999. "Information Technology, Workplace Organization and the Demand for Skilled Labor: Firm-Level Evidence," NBER Working Papers 7136, National Bureau of Economic Research, Inc.
  14. Francesco Caselli, 1999. "Technological Revolutions," American Economic Review, American Economic Association, American Economic Association, vol. 89(1), pages 78-102, March.
  15. Per Krusell & Lee E. Ohanian & Jose-Victor Rios-Rull & Giovanni L. Violante, 1997. "Capital-skill complementarity and inequality: a macroeconomic analysis," Staff Report, Federal Reserve Bank of Minneapolis 239, Federal Reserve Bank of Minneapolis.
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  18. Paul Beaudry & David Green, 1998. "What is Driving US and Canadian Wages: Exogenous Technical Change or Endogenous Choice of Technique?," NBER Working Papers 6853, National Bureau of Economic Research, Inc.
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