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Wage Dispersion, Markets and Institutions: The Effects of the Boom in Education on the Wage Structure

  • Barth, Erling


    (Institute for Social Research, Oslo)

  • Lucifora, Claudio


    (Università Cattolica del Sacro Cuore)

In this paper, we investigate the effects of the boom in education on the wage structure in Europe. We use detailed information on the distribution of wages, estimated from microdata from 12 European countries from the beginning of the 1980’s to the present, to analyse the changes both between and within groups. We specify and estimate a model with supply and demand for different types of labour, as well as institutions affecting the bargained relative wage. Our results show that the boom in education closely matched the shifts in demand due to (skill biased) technological change, which in turn explains why the wage premia for education only rose moderately. We use the conditional wage spread within tertiary education, predicted from quantile log wage regressions, to investigate the hypothesis of skills erosion as a result of the large expansion in tertiary education. We find no evidence in favour of the hypothesis that the boom in higher education lead to an erosion of skills within the group of tertiary education, nor evidence of increasing “over-education” in Europe. Labour market institutions also matter: bargaining co-ordination and employment protection are shown to have a compressing effect on wages, but at different points of the wage distribution.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2181.

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Length: 44 pages
Date of creation: Jun 2006
Date of revision:
Handle: RePEc:iza:izadps:dp2181
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  1. David H. Autor & Lawrence F. Katz & Melissa S. Kearney, 2005. "Trends in U.S. Wage Inequality: Re-Assessing the Revisionists," NBER Working Papers 11627, National Bureau of Economic Research, Inc.
  2. Robert J. Barro & Jong-Wha Lee, 2000. "International Data on Educational Attainment: Updates and Implications," CID Working Papers 42, Center for International Development at Harvard University.
  3. Daron Acemoglu, 2003. "Labor- And Capital-Augmenting Technical Change," Journal of the European Economic Association, MIT Press, vol. 1(1), pages 1-37, 03.
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  5. Machin, Stephen, 1997. "The decline of labour market institutions and the rise in wage inequality in Britain," European Economic Review, Elsevier, vol. 41(3-5), pages 647-657, April.
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  7. Machin, S. & Van Reenen, J., 1997. "Technology and Changes in Skill Structure: Evidence from Seven OECD Countries," Papers 24, Centre for Economic Performance & Institute of Economics.
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  9. Richard Layard & Stephen Nickell, 1992. "Unemployment in the OECD Countries," CEP Discussion Papers dp0081, Centre for Economic Performance, LSE.
  10. Barro, Robert J & Lee, Jong Wha, 1996. "International Measures of Schooling Years and Schooling Quality," American Economic Review, American Economic Association, vol. 86(2), pages 218-23, May.
  11. Peter Gottschalk & Timothy M. Smeeding, 1997. "Cross-National Comparisons of Earnings and Income Inequality," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 633-687, June.
  12. Juhn, Chinhui & Murphy, Kevin M & Pierce, Brooks, 1993. "Wage Inequality and the Rise in Returns to Skill," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 410-42, June.
  13. Daron Acemoglu, 2002. "Technical Change, Inequality, and the Labor Market," Journal of Economic Literature, American Economic Association, vol. 40(1), pages 7-72, March.
  14. 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.
  15. Francine D. Blau & Lawrence M. Kahn, 2000. "Gender Differences in Pay," NBER Working Papers 7732, National Bureau of Economic Research, Inc.
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  17. repec:oup:qjecon:v:113:y:1998:i:4:p:1055-1089 is not listed on IDEAS
  18. Edwin Leuven & Hessel Oosterbeek & Hans van Ophem, 2004. "Explaining international differences in male skill wage differentials by differences in demand and supply of skill," Economic Journal, Royal Economic Society, vol. 114(495), pages 466-486, 04.
  19. Boeri, Tito & Nicoletti, Giuseppe & Scarpetta, Stefano, 2000. "Regulation And Labour Market Performance," CEPR Discussion Papers 2420, C.E.P.R. Discussion Papers.
  20. Stephen Machin & Alan Manning, 1992. "Minimum Wages," CEP Discussion Papers dp0080, Centre for Economic Performance, LSE.
  21. Peter Gottschalk & Mary Joyce, 1993. "Is Earnings Inequality Also Rising In Other Industrialized Countries?," Boston College Working Papers in Economics 223, Boston College Department of Economics.
  22. Claudio Lucifora, 1999. "Wage Inequalities and Low Pay: The Role of Labour Market Institutions," Working Papers 1999.13, Fondazione Eni Enrico Mattei.
  23. 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.
  24. David H. Autor & Lawrence F. Katz & Alan B. Krueger, 1998. "Computing Inequality: Have Computers Changed the Labor Market?," The Quarterly Journal of Economics, Oxford University Press, vol. 113(4), pages 1169-1213.
  25. repec:oup:qjecon:v:110:y:1995:i:4:p:1111-25 is not listed on IDEAS
  26. Brunello, Giorgio & Comi, Simona & Lucifora, Claudio, 2000. "The College Wage Gap in 10 European Countries: Evidence from Two Cohorts," IZA Discussion Papers 228, Institute for the Study of Labor (IZA).
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