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Skill Upgrading and Rigid Relative Wages: The Case of Danish Manufacturing

  • Skaksen, Jan Rose

    ()

    (Copenhagen Business School)

  • Sorensen, Anders

    ()

    (CEBR, Copenhagen)

Relative wages have been remarkably rigid for the last two decades in Danish manufacturing despite large shifts in relative employment from unskilled labor towards skilled and educated labor. Assuming capital-skill complementarity and fixed relative wages as a consequence of labor market institutions, we argue that skill upgrading is more pronounced during downturns than upturns. This prediction is supported by a high positive and significant correlation between changes in relative employment of skilled labor and changes in the unemployment rate. Furthermore, we show that international outsourcing has played an important role in explaining the shift in relative labor demand.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 664.

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Length: 26 pages
Date of creation: Dec 2002
Date of revision:
Publication status: published as 'Skill Upgrading and Rigid Relative Wages' in: B.E. Journal of Macroeconomics: Contributions to Macroeconomics, 2005, 5(1), Art. 7
Handle: RePEc:iza:izadps:dp664
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  1. Risager, Ole, 1993. "Labour Substitution in Denmark," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 55(1), pages 123-35, February.
  2. David H. Autor & Lawrence F. Katz & Alan B. Krueger, 1997. "Computing Inequality: Have Computers Changed the Labor Market?," NBER Working Papers 5956, National Bureau of Economic Research, Inc.
  3. Arulampalam, Wiji & Booth, Alison L. & Bryan, Mark L., 2003. "Training in Europe," IZA Discussion Papers 933, Institute for the Study of Labor (IZA).
  4. 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.
  5. Per Krusell & Lee E. Ohanian & Jose-Victor Rios-Rull & Giovanni L. Violante, 1997. "Capital-skill complementarity and inequality: a macroeconomic analysis," Staff Report 239, Federal Reserve Bank of Minneapolis.
  6. Blau, Francine D & Kahn, Lawrence M, 1996. "International Differences in Male Wage Inequality: Institutions versus Market Forces," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 791-836, August.
  7. Daron Acemoglu, 2003. "Cross-Country Inequality Trends," Economic Journal, Royal Economic Society, vol. 113(485), pages F121-F149, February.
  8. E Berman & J Bound & Stephen Machin, 1997. "Implications of Skill-Biased Technological Change: International Evidence," CEP Discussion Papers dp0367, Centre for Economic Performance, LSE.
  9. Berman, Eli & Bound, John & Griliches, Zvi, 1994. "Changes in the Demand for Skilled Labor within U.S. Manufacturing: Evidence from the Annual Survey of Manufactures," The Quarterly Journal of Economics, MIT Press, vol. 109(2), pages 367-97, May.
  10. Robert Feenstra & Gordon Hanson, 2001. "Global Production Sharing and Rising Inequality: A Survey of Trade and Wages," NBER Working Papers 8372, National Bureau of Economic Research, Inc.
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