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International Differences in Male Wage Inequality: Institutions versus Market Forces

  • Francine D. Blau
  • Lawrence M. Kahn

While changes in the demand for skilled labor appear to have led to a widening of the wage structures in many countries during the 198Os,considerable differences in the level of wage inequality remain. In this paper, we examine the sources of these differences, focusing primarily on explaining the considerably higher level of wage inequality in the U.S. We find that the greater overall dispersion of the U.S. wage distribution reflects considerably more compression at the bottom of the distribution in the other countries, but relatively little difference in the degree of wage inequality at the top. While differences in the distribution of measured characteristics help to explain some aspects of the international differences, U.S. labor market prices--that is, higher rewards to labor market skills-are an important factor. Labor market institutions, chiefly the relatively decentralized wage-setting mechanisms in the U.S. compared to other countries, appear to provide the most persuasive explanation for these international differences in prices. In contrast, the pattern of cross-country differences in relative supplies of and demands for skills does not appear to be consistent with the pattern of observed differences in wage inequality.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4678.

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Date of creation: Mar 1994
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Publication status: published as Journal of Political Economy, vol. 104, no. 4, pp. 791-837, August 1996.
Handle: RePEc:nbr:nberwo:4678
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  1. 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.
  2. Chamberlain, G., 1991. "Quantile Regression, Censoring, And The Structure Of Wages," Harvard Institute of Economic Research Working Papers 1558, Harvard - Institute of Economic Research.
  3. Steven J. Davis, 1992. "Cross-Country Patterns of Change in Relative Wages," NBER Working Papers 4085, National Bureau of Economic Research, Inc.
  4. Dora L. Costa & Matthew E. Kahn, 2008. "Learning from the Past," NBER Chapters, in: Heroes and Cowards: The Social Face of War National Bureau of Economic Research, Inc.
  5. Wallace E. Hendricks & Lawrence M. Kahn, 1982. "The Determinants of Bargaining Structure in U.S. Manufacturing Industries," ILR Review, Cornell University, ILR School, vol. 35(2), pages 181-195, January.
  6. Blau, Francine D & Kahn, Lawrence M, 1992. "The Gender Earnings Gap: Learning from International Comparisons," American Economic Review, American Economic Association, vol. 82(2), pages 533-38, May.
  7. Harry C. Katz, 1993. "The Decentralization of Collective Bargaining: A Literature Review and Comparative Analysis," ILR Review, Cornell University, ILR School, vol. 47(1), pages 3-22, October.
  8. Richard B. Freeman, 1980. "Unionism and the dispersion of wages," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 34(1), pages 3-23, October.
  9. Richard B. Freeman, 1981. "Union Wage Practices and Wage Dispersion within Establishments," NBER Working Papers 0752, National Bureau of Economic Research, Inc.
  10. Richard B. Freeman, 1978. "Unionism and the Dispersion of Wages," NBER Working Papers 0248, National Bureau of Economic Research, Inc.
  11. Richard B. Freeman, 1982. "Union wage practices and wage dispersion within establishments," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 36(1), pages 3-21, October.
  12. Krueger, Alan B & Summers, Lawrence H, 1988. "Efficiency Wages and the Inter-industry Wage Structure," Econometrica, Econometric Society, vol. 56(2), pages 259-93, March.
  13. Wallace Hendricks & Larry M. Kahn, 1982. "The determinants of bargaining structure in U.S. manufacturing industries," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 35(2), pages 181-195, January.
  14. Kahn, Lawrence M & Curme, Michael, 1987. "Unions and Nonunion Wage Dispersion," The Review of Economics and Statistics, MIT Press, vol. 69(4), pages 600-607, November.
  15. Erica L. Groshen, 1987. "The structure of the female/male wage differential: is it who you are, what you do, or where you work?," Working Paper 8708, Federal Reserve Bank of Cleveland.
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