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Labor Market Institutions, Wages and Investment

  • Joern-Steffen Pischke

Labor market institutions, via their effect on the wage structure, affect the investment decisions of firms in labor markets with frictions. This observation helps explain rising wage inequality in the US, but a relatively stable wage structure in Europe in the 1980s. These different trends are the result of different investment decisions by firms for the jobs typically held by less-skilled workers. Firms in Europe have more incentives to invest in less-skilled workers, because minimum wages or union contracts mandate that relatively high wages have to be paid to these workers. I report some empirical evidence for investments in training and physical capital across the Atlantic, which is roughly in line with this theoretical reasoning.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1278.

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Date of creation: 2004
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Handle: RePEc:ces:ceswps:_1278
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  1. David Card & John E. DiNardo, 2002. "Skill Biased Technological Change and Rising Wage Inequality: Some Problems and Puzzles," NBER Working Papers 8769, National Bureau of Economic Research, Inc.
  2. David Neumark & William Wascher, 1998. "Minimum Wages and Training Revisited," NBER Working Papers 6651, National Bureau of Economic Research, Inc.
  3. Acemoglu, Daron & Pischke, Jörn-Steffen, 1999. "Minimum Wages and On-the-Job Training," CEPR Discussion Papers 2177, C.E.P.R. Discussion Papers.
  4. Daron Acemoglu & Jörn-Steffen Pischke, 1998. "Why Do Firms Train? Theory And Evidence," The Quarterly Journal of Economics, MIT Press, vol. 113(1), pages 78-118, February.
  5. Daron Acemoglu, 2000. "Technical Change, Inequality, and the Labor Market," NBER Working Papers 7800, National Bureau of Economic Research, Inc.
  6. Acemoglu, Daron & Pischke, Jorn-Steffen, 1999. "Beyond Becker: Training in Imperfect Labour Markets," Economic Journal, Royal Economic Society, vol. 109(453), pages F112-42, February.
  7. Acemoglu, Daron & Pischke, Jörn-Steffen, 1998. "The Structure of Wages and Investment in General Training," CEPR Discussion Papers 1833, C.E.P.R. Discussion Papers.
  8. David Card & Francis Kramarz & Thomas Lemieux, 1996. "Changes in the Relative Structure of Wages and Employment: A Comparison of the United States, Canada, and France," NBER Working Papers 5487, National Bureau of Economic Research, Inc.
  9. Daron Acemoglu, 2003. "Cross-Country Inequality Trends," Economic Journal, Royal Economic Society, vol. 113(485), pages F121-F149, February.
  10. repec:rus:hseeco:57408 is not listed on IDEAS
  11. Krueger, A. & Pischke, J.S., 1997. "Observations and Conjectures on the U.S. Employment Miracle," Working papers 97-15, Massachusetts Institute of Technology (MIT), Department of Economics.
  12. Nickell, Stephen & Bell, Brian, 1996. "Changes in the Distribution of Wages and Unemployment in OECD Countries," American Economic Review, American Economic Association, vol. 86(2), pages 302-08, May.
  13. Arulampalam, Wiji & Booth, Alison L. & Bryan, Mark L., 2002. "Work-Related Training and the New National Minimum Wage in Britain," IZA Discussion Papers 595, Institute for the Study of Labor (IZA).
  14. Richard B. Freeman & Ronald Schettkat, 2000. "Skill Compression, Wage Differentials and Employment: Germany vs. the US," NBER Working Papers 7610, National Bureau of Economic Research, Inc.
  15. Francine D. Blau & Lawrence Kahn, 2004. "Do Cognitive Test Scores Explain Higher U.S. Wage Inequality?," CESifo Working Paper Series 1139, CESifo Group Munich.
  16. Arulampalam, Wiji & Booth, Alison L. & Bryan, Mark L., 2003. "Work-related training and the new National Minimum Wage in Britain -ISER Working Paper-," ISER Working Paper Series 2003-05, Institute for Social and Economic Research.
  17. Richard B. Freeman, 1995. "Are Your Wages Set in Beijing?," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 15-32, Summer.
  18. Nickell, Stephen & Bell, Brian, 1995. "The Collapse in Demand for the Unskilled and Unemployment across the OECD," Oxford Review of Economic Policy, Oxford University Press, vol. 11(1), pages 40-62, Spring.
  19. Stephen Nickell, 2003. "A picture of European unemployment: success and failure," LSE Research Online Documents on Economics 20039, London School of Economics and Political Science, LSE Library.
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