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Technology and Labor Regulations

  • Alberto Alesina
  • Joseph Zeira

Many low skilled jobs have been substituted away for machines in Europe, or eliminated, much more so than in the US, while technological progress at the "top", i.e. at the high-tech sector, is faster in the US than in Europe. This paper suggests that the main difference between Europe and the US in this respect is their different labor market policies. European countries reduce wage flexibility and inequality through a host of labor market regulations, like binding minimum wage laws, permanent unemployment subsidies, firing costs, etc. Such policies create incentives to develop and adopt labor saving capital intensive technologies at the low end of the skill distribution. At the same time technical change in the US is more skill biased than in Europe, since American skilled wages are higher. In the last few years some partial labor market reforms in Europe may have started to slow down or even reverse this trend.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12581.

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Date of creation: Oct 2006
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Handle: RePEc:nbr:nberwo:12581
Note: EFG ME LS
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