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Relative Demand and Supply of Skills and Wage Rigidity in the United States, Britain, and Western Germany

Listed author(s):
  • Puhani Patrick A.

    ()

    (Leibniz Universität Hannover, Institut für Arbeitsökonomik, Königsworther Platz 1, 30167 Hannover, Germany)

I extend a two-skill group model by Katz and Murphy (1992) to estimate relative demand and supply for skills as well as wage rigidity in Germany. Using three data sets for Germany, two for Britain and one for the United States, I simulate the change in relative wage rigidity (wage compression) in all three countries during the early and mid 1990s, this being the period when unemployment increased in Germany but fell in Britain and the US. I show that in this period, Germany experienced wage compression (relative wage rigidity), whereas Britain and the US experienced wage decompression. This evidence is consistent with the Krugman (1994) hypothesis.

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Article provided by De Gruyter in its journal Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik).

Volume (Year): 228 (2008)
Issue (Month): 5-6 (October)
Pages: 573-585

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Handle: RePEc:jns:jbstat:v:228:y:2008:i:5-6:p:573-585
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  1. Dustmann, Christian & Ludsteck, Johannes & Schönberg, Uta, 2007. "Revisiting the German Wage Structure," IZA Discussion Papers 2685, Institute for the Study of Labor (IZA).
  2. David Autor & Lawrence Katz & Alan B. Krueger, 1997. "Computing Inequality: Have Computers Changed the Labor Market?," Working Papers 756, Princeton University, Department of Economics, Industrial Relations Section..
  3. Gerlach Knut & Stephan Gesine, 2006. "Bargaining Regimes and Wage Dispersion," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 226(6), pages 629-645, December.
  4. Olaf H¸bler & Uwe Jirjahn, 2003. "Works Councils and Collective Bargaining in Germany: The Impact on Productivity and Wages," Scottish Journal of Political Economy, Scottish Economic Society, vol. 50(4), pages 471-491, 09.
  5. Fitzenberger, Bernd & Kohn, Karsten, 2006. "Skill Wage Premia, Employment, and Cohort Effects: Are Workers in Germany All of the Same Type?," IZA Discussion Papers 2185, Institute for the Study of Labor (IZA).
  6. Fitzenberger, Bernd & Wunderlich, Gaby, 2000. "Gender wage differences in West Germany: a cohort analysis," ZEW Discussion Papers 00-48, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  7. James Heckman & Lance Lochner & Christopher Taber, 1998. "Explaining Rising Wage Inequality: Explanations With A Dynamic General Equilibrium Model of Labor Earnings With Heterogeneous Agents," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(1), pages 1-58, January.
  8. Fitzenberger, Bernd & Franz, Wolfgang, 2000. "Jobs. Jobs? Jobs! Orientierungshilfen für den Weg zu mehr Beschäftigung," ZEW Discussion Papers 00-49, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  9. Cornelissen, Thomas & Huebler, Oloaf, 2006. "Downward Wage Rigidity and Job Mobility," Hannover Economic Papers (HEP) dp-349, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  10. Angrist, Joshua D, 1995. "The Economic Returns to Schooling in the West Bank and Gaza Strip," American Economic Review, American Economic Association, vol. 85(5), pages 1065-1087, December.
  11. Patrick A. Puhani, 2005. "Relative Supply and Demand for Skills in Switzerland," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 141(IV), pages 555-584, December.
  12. Manacorda, Marco & Petrongolo, Barbara, 1999. "Skill Mismatch and Unemployment in OECD Countries," Economica, London School of Economics and Political Science, vol. 66(262), pages 181-207, May.
  13. Paul R. Krugman, 1994. "Past and prospective causes of high unemployment," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, issue Jan, pages 49-98.
  14. Katz, Lawrence F. & Autor, David H., 1999. "Changes in the wage structure and earnings inequality," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 26, pages 1463-1555 Elsevier.
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