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Labor market institutions, wages and investment

  • Jorn-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 London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 19938.

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Length: 36 pages
Date of creation: Sep 2004
Date of revision:
Handle: RePEc:ehl:lserod:19938
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  1. 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.
  2. David Card & Francis Kramarz & Thomas Lemieux, 1999. "Changes in the Relative Structure of Wages and Employment: A Comparison of the United States, Canada, and France," Canadian Journal of Economics, Canadian Economics Association, vol. 32(4), pages 843-877, August.
  3. Daron Acemoglu & Jorn-Steffen Pischke, 1999. "The Structure of Wages and Investment in General Training," Journal of Political Economy, University of Chicago Press, vol. 107(3), pages 539-572, June.
  4. Stephen Nickell, 2003. "A Picture of European Unemployment: Success and Failure," CEP Discussion Papers dp0577, Centre for Economic Performance, LSE.
  5. Christian Dustmann & Uta Schönberg, 2009. "Training and Union Wages," The Review of Economics and Statistics, MIT Press, vol. 91(2), pages 363-376, May.
  6. 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.
  7. Francine D. Blau & Lawrence Kahn, 2004. "Do Cognitive Test Scores Explain Higher U.S. Wage Inequality?," CESifo Working Paper Series 1139, CESifo Group Munich.
  8. Richard B. Freeman, 1995. "Are Your Wages Set in Beijing?," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 15-32, Summer.
  9. 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.
  10. 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.
  11. Freeman, Richard & Schettkat, Ronald, 2001. "Skill Compression, Wage Differentials, and Employment: Germany vs the US," Oxford Economic Papers, Oxford University Press, vol. 53(3), pages 582-603, July.
  12. repec:rus:hseeco:57408 is not listed on IDEAS
  13. Neumark, David & Wascher, William, 2001. "Minimum Wages and Training Revisited," Journal of Labor Economics, University of Chicago Press, vol. 19(3), pages 563-95, July.
  14. Acemoglu, Daron & Pischke, Jörn-Steffen, 1999. "Minimum Wages and On-the-Job Training," CEPR Discussion Papers 2177, C.E.P.R. Discussion Papers.
  15. Daron Acemoglu, 2000. "Technical Change, Inequality, and the Labor Market," NBER Working Papers 7800, National Bureau of Economic Research, Inc.
  16. David Card & John E. DiNardo, 2002. "Skill-Biased Technological Change and Rising Wage Inequality: Some Problems and Puzzles," Journal of Labor Economics, University of Chicago Press, vol. 20(4), pages 733-783, October.
  17. Arulampalam, Wiji & Alison L Booth & Mark L Bryan, 2003. "Work-related Training and the New National Minimum Wage in Britain," Royal Economic Society Annual Conference 2003 9, Royal Economic Society.
  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. Wiji Arulampalam & Alison L. Booth & Mark L. Bryan, 2004. "Training and the new minimum wage," Economic Journal, Royal Economic Society, vol. 114(494), pages C87-C94, 03.
  20. Daron Acemoglu, 2002. "Cross-Country Inequality Trends," NBER Working Papers 8832, National Bureau of Economic Research, Inc.
  21. repec:oup:qjecon:v:113:y:1998:i:1:p:78-118 is not listed on IDEAS
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