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Between-group Competition in the Labor Market and the Rising Returns to Skill: US and France 1964-2000

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Listed author(s):
  • Wasmer, Etienne

    ()

    (Sciences Po, Paris)

Abstract

This paper describes the changes in the composition of the labor force in the last 35 years and quantifies the substitution of low education / high experience workers by low experience / high education workers by using US and French microdata. The consequences of this substitution on the wage structure are then investigated. In the US, labor supply changes can explain the changes in returns to experience. It also accounts for a part of the increase in returns to education between 1980 and 2000, between 8% and 20% depending on the specification. These results rely on panel estimates of a useful concept: the elasticity of substitution between experience and education, which is found to be less than half. In France, the covariations of prices and the supply of skills are consistent with a pure labor supply explanation. Methodologically, the paper shows that the use of a stock measure of efficient units of skills is better than flow measures (e.g. cohort size). It also allows to analyze the consequences of rising female labor participation.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 292.

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Length: 59 pages
Date of creation: May 2001
Handle: RePEc:iza:izadps:dp292
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Keywords: Wage inequality; education; experience; labor supply;

Other versions of this item:

Find related papers by JEL classification:
  • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
  • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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  1. Grant, James H & Hamermesh, Daniel S, 1981. "Labor Market Competition among Youths, White Women and Others," The Review of Economics and Statistics, MIT Press, vol. 63(3), pages 354-360, August.
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  3. Mark C. Berger, 1983. "Changes in Labor Force Composition and Male Earnings: A Production Approach," Journal of Human Resources, University of Wisconsin Press, vol. 18(2), pages 177-196.
  4. David Card & Thomas Lemieux, 2001. "Can Falling Supply Explain the Rising Return to College for Younger Men? A Cohort-Based Analysis," The Quarterly Journal of Economics, Oxford University Press, vol. 116(2), pages 705-746.
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  6. Steven J. Davis, 1992. "Cross-Country Patterns of Change in Relative Wages," NBER Chapters,in: NBER Macroeconomics Annual 1992, Volume 7, pages 239-300 National Bureau of Economic Research, Inc.
  7. Peter Gottschalk, 1997. "Inequality, Income Growth, and Mobility: The Basic Facts," Journal of Economic Perspectives, American Economic Association, vol. 11(2), pages 21-40, Spring.
  8. Bertola, Giuseppe & Ichino, Andrea, 1995. "Wage Inequality and Unemployment: US vs Europe," CEPR Discussion Papers 1186, C.E.P.R. Discussion Papers.
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  10. Joseph G. Altonji & Robert A. Shakotko, 1987. "Do Wages Rise with Job Seniority?," Review of Economic Studies, Oxford University Press, vol. 54(3), pages 437-459.
  11. George J. Borjas & Richard B. Friedman & Lawrence F. Katz, 1997. "How Much Do Immigration and Trade Affect Labor Market Outcomes?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(1), pages 1-90.
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  16. Amanda Gosling & Stephen Machin & Costas Meghir, 2000. "The Changing Distribution of Male Wages in the U.K," Review of Economic Studies, Oxford University Press, vol. 67(4), pages 635-666.
  17. Lawrence F. Katz & Gary W. Loveman & David G. Blanchflower, 1995. "A Comparison of Changes in the Structure of Wages in Four OECD Countries," NBER Chapters,in: Differences and Changes in Wage Structures, pages 25-66 National Bureau of Economic Research, Inc.
  18. Finis Welch, 1979. "Effects of Cohort Size on Earnings: The Baby Boom Babies' Financial Bust," UCLA Economics Working Papers 146, UCLA Department of Economics.
  19. Levy, Frank & Murnane, Richard J, 1992. "U.S. Earnings Levels and Earnings Inequality: A Review of Recent Trends and Proposed Explanations," Journal of Economic Literature, American Economic Association, vol. 30(3), pages 1333-1381, September.
  20. Freeman, Richard B., 1987. "Demand for education," Handbook of Labor Economics,in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 6, pages 357-386 Elsevier.
  21. Richard B. Freeman, 1995. "Are Your Wages Set in Beijing?," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 15-32, Summer.
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  23. John E. DiNardo & Jörn-Steffen Pischke, 1997. "The Returns to Computer Use Revisited: Have Pencils Changed the Wage Structure Too?," The Quarterly Journal of Economics, Oxford University Press, vol. 112(1), pages 291-303.
  24. Yoram Ben-Porath, 1967. "The Production of Human Capital and the Life Cycle of Earnings," Journal of Political Economy, University of Chicago Press, vol. 75, pages 352-352.
  25. 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 410-442, June.
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  27. repec:crs:wpaper:9931 is not listed on IDEAS
  28. Abraham, Katharine G & Farber, Henry S, 1987. "Job Duration, Seniority, and Earnings," American Economic Review, American Economic Association, vol. 77(3), pages 278-297, June.
  29. Wasmer, Etienne, 2001. "Measuring human capital in the labor market: The supply of experience in 8 OECD countries," European Economic Review, Elsevier, vol. 45(4-6), pages 861-874, May.
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Cited by:

  1. Verdugo, Gregory, 2014. "The great compression of the French wage structure, 1969–2008," Labour Economics, Elsevier, vol. 28(C), pages 131-144.
  2. Susan Johnson & Peter Kuhn, 2004. "Increasing Male Earnings Inequality in Canada and the United States, 1981­1997: The Role of Hours Changes versus Wage Changes," Canadian Public Policy, University of Toronto Press, vol. 30(2), pages 155-176, June.
  3. Marcel Mérette, "undated". "Substitution between Young and Old Workers in an Ageing Context," EcoMod2007 23900057, EcoMod.

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