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Labor Market Institutions and Skill Premiums: An Empirical Analysis on the UK, 1972-2002

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  • Fei Peng
  • Lili Kang

Abstract

This paper analyzes the links between labor market institutions and skill premiums in the UK. We focus on the effect of deunionization on rising skill premiums during the 1980s and 1990s. We find that the deunionization of unskilled workers can explain about 25 percent of the dramatic increase of the degree premium in the private sector. While the degree premium in the public sector increases less than that in the private sector, the deunionization of unskilled workers is also the main drive behind it. However, the deunionization of skilled workers has no significant effect on skill premiums. Neither do taxation and unemployment benefits. We also find evidence that casts doubts on the conventional argument of skill-biased technology change (SBTC) and industrial restructuring on earnings inequality. Our results reveal the specific importance of unskilled workers' unionization in the problem of increasing wage inequality.

Suggested Citation

  • Fei Peng & Lili Kang, 2013. "Labor Market Institutions and Skill Premiums: An Empirical Analysis on the UK, 1972-2002," Journal of Economic Issues, Taylor & Francis Journals, vol. 47(4), pages 959-982.
    • Handle: RePEc:mes:jeciss:v:47:y:2013:i:4:p:959-982
    DOI: 10.2753/JEI0021-3624470408
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    Cited by:

    1. Peng, Fei & Kang, Lili, 2013. "Market Mechanism and Skill Premiums in the UK 1972-2002," MPRA Paper 50195, University Library of Munich, Germany.
    2. Peng, Fei & Anwar, Sajid & Kang, Lili, 2017. "New technology and old institutions: An empirical analysis of the skill-biased demand for older workers in Europe," Economic Modelling, Elsevier, vol. 64(C), pages 1-19.
    3. Thanos Fragkandreas, 2022. "Three Decades of Research on Innovation and Inequality: Causal Scenarios, Explanatory Factors, and Suggestions," Working Papers 60, Birkbeck Centre for Innovation Management Research, revised Feb 2022.
    4. Deniz Sevinc, 2020. "How Poor is Poor? A novel look at multidimensional poverty in the UK," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 149(3), pages 833-859, June.

    More about this item

    JEL classification:

    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law

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