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The Changing Structure of Wages in the US and Germany: What Explains the Differences?

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  • Paul Beaudry
  • David Green

Abstract

Over the last twenty years the wage-education relationships in the US and Germany have evolved very differently, while the education composition of employment has evolved in a surprisingly parallel fashion. In this paper, we propose and test an explanation to these conflicting patterns. The model we present has two important elements: (1) technological change arises in the form of an alternative production process as opposed to being in the factor augmenting form, which renders technological adoption endogenous, (2) aggregate production depends on three factors (physical capital, human capital and labor). Based on this framework, we show why imbalances in the accumulation of human versus physical capital will be especially detrimental to low skill workers when the new technology is skill-biased and exhibits capital-skill complementarity. Using matched files from the PSID (US) and the GSOEP (Germany), we demonstrate how factor movements within these countries are associated with wage changes that are strongly supportive of our endogenous technological adoption model. Our conclusion is that the difference in the US and German experiences appear driven by the US having under-accumulated physical capital relative human capital over the 1979-96 period, while Germany accumulated factors in a more balanced manner.

Suggested Citation

  • Paul Beaudry & David Green, 2000. "The Changing Structure of Wages in the US and Germany: What Explains the Differences?," NBER Working Papers 7697, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:7697
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    References listed on IDEAS

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    8. 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.
    9. David Card & Francis Kramarz & Thomas Lemieux, 1999. "Changes in the Relative Structure of Wages and Employment: A Comparison of the United States, Canada, and France," Canadian Journal of Economics, Canadian Economics Association, vol. 32(4), pages 843-877, August.
    10. Moulton, Brent R., 1986. "Random group effects and the precision of regression estimates," Journal of Econometrics, Elsevier, vol. 32(3), pages 385-397, August.
    11. Per Krusell & Lee E. Ohanian & JosÈ-Victor RÌos-Rull & Giovanni L. Violante, 2000. "Capital-Skill Complementarity and Inequality: A Macroeconomic Analysis," Econometrica, Econometric Society, vol. 68(5), pages 1029-1054, September.
    12. Duranton, Gilles, 2004. "The economics of production systems: Segmentation and skill-biased change," European Economic Review, Elsevier, vol. 48(2), pages 307-336, April.
    13. Francesco Caselli, 1999. "Technological Revolutions," American Economic Review, American Economic Association, vol. 89(1), pages 78-102, March.
    14. Daron Acemoglu, 2002. "Directed Technical Change," Review of Economic Studies, Oxford University Press, vol. 69(4), pages 781-809.
    15. repec:fth:prinin:390 is not listed on IDEAS
    16. Claudia Goldin & Lawrence F. Katz, 1998. "The Origins of Technology-Skill Complementarity," The Quarterly Journal of Economics, Oxford University Press, vol. 113(3), pages 693-732.
    17. 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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    19. Paul Beaudry & David Green, 1998. "What is Driving US and Canadian Wages: Exogenous Technical Change or Endogenous Choice of Technique?," NBER Working Papers 6853, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Daron Acemoglu, 2003. "Cross-Country Inequality Trends," Economic Journal, Royal Economic Society, vol. 113(485), pages 121-149, February.
    2. Heisz, Andrew & Jackson, Andrew & Picot, Garnett, 2002. "Winners and Losers in the Labour Market of the 1990s," Analytical Studies Branch Research Paper Series 2002184e, Statistics Canada, Analytical Studies Branch.
    3. Heisz, Andrew & Jackson, Andrew & Picot, Garnett, 2002. "Les entreprises gagnantes et perdantes du marche de l'emploi des annees 90," Direction des etudes analytiques : documents de recherche 2002184f, Statistics Canada, Direction des etudes analytiques.
    4. Bas Jacobs, 2004. "The Lost Race between Schooling and Technology," De Economist, Springer, vol. 152(1), pages 47-78, March.
    5. Giancarlo Corsetti & John Flemming & Seppo Honkapohja & Willi Leibfritz & Gilles Saint-Paul & Hans-Werner Sinn & Xavier Vives, 2002. "Growth and Productivity," EEAG Report on the European Economy, CESifo Group Munich, vol. 0, pages 57-70, April.
    6. Timothy M. Smeeding, 2002. "Globalization, Inequality, and the Rich Countries of the G-20: Evidence from the Luxembourg Income Study (LIS)," Center for Policy Research Working Papers 48, Center for Policy Research, Maxwell School, Syracuse University.
    7. Ingo Geishecker & Holger Görg, 2003. "Winners and Losers: Fragmentation, Trade and Wages Revisited," Discussion Papers of DIW Berlin 385, DIW Berlin, German Institute for Economic Research.
    8. Paul Beaudry & Mark Doms & Ethan Lewis, 2006. "Endogenous skill bias in technology adoption: city-level evidence from the IT revolution," Working Paper Series 2006-24, Federal Reserve Bank of San Francisco.
    9. Günther Rehme, 2007. "Education, Economic Growth and Measured Income Inequality," Economica, London School of Economics and Political Science, vol. 74(295), pages 493-514, August.
    10. Matthias Weiss & Alfred Garloff, 2009. "Skill-biased technological change and endogenous benefits: the dynamics of unemployment and wage inequality," Applied Economics, Taylor & Francis Journals, vol. 43(7), pages 811-821.
    11. Ken Henry & Terry O'Brien, 2003. "Globalisation, Poverty and Inequality: Friends, Foes or Strangers?," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 36(1), pages 3-21.
    12. Paul Beaudry & David A. Green, 2005. "Changes in U.S. Wages, 19762000: Ongoing Skill Bias or Major Technological Change?," Journal of Labor Economics, University of Chicago Press, vol. 23(3), pages 609-648, July.
    13. Antonczyk, Dirk & DeLeire, Thomas & Fitzenberger, Bernd, 2010. "Polarization and Rising Wage Inequality: Comparing the U.S. and Germany," IZA Discussion Papers 4842, Institute for the Study of Labor (IZA).
    14. Paul Beaudry & David A. Green, 2002. "Population Growth, Technological Adoption, and Economic Outcomes in the Information Era," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(4), pages 749-774, October.
    15. Timothy M Smeeding, 2002. "Globalisation, Inequality and the Rich Countries of the G-20: Evidence from the Luxembourg Income Study (LIS)," RBA Annual Conference Volume,in: David Gruen & Terry O'Brien & Jeremy Lawson (ed.), Globalisation, Living Standards and Inequality: Recent Progress and Continuing Challenges Reserve Bank of Australia.
    16. Paul Beaudry & Fabrice Collard, 2002. "Why has the Employment-Productivity Tradeoff among Industrialized Countries been so strong?," NBER Working Papers 8754, National Bureau of Economic Research, Inc.
    17. repec:ilo:ilowps:365055 is not listed on IDEAS
    18. Paul Beaudry & David Green, 2001. "Population Growth, Technological Adoption and Economic Outcomes: A Theory of Cross-Country Differences for the Information Era," NBER Working Papers 8149, National Bureau of Economic Research, Inc.
    19. Paul Beaudry & Fabrice Collard & David A. Green, 2005. "Explaining Productivity Growth: The Role of Demographics," International Productivity Monitor, Centre for the Study of Living Standards, vol. 10, pages 45-58, Spring.

    More about this item

    JEL classification:

    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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