Skill compression, wage differentials, and employment: Germany vs the US

Authors: R. Freeman¹; R. Schettkat²

Source: Oxford Economic Papers, Volume 53, Number 3, 1 July 2001 , pp. 582-603(22)

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Abstract:

Germany's more compressed wage structure is widely viewed as the main cause of the German-US difference in employment and unemployment, but part of the compression is due to Germany having a narrower distribution of skills than the US. Even adjusted for skills, however, we find that Germany has a more compressed wage distribution than the US. But relatively little of the US-German employment difference can be attributed to the compressed wage distribution. We find that jobless Germans have nearly the same skills as employed Germans and look more like average Americans than like low skilled Americans, which runs counter to the wage compression hypothesis. Given these patterns, the pay and employment experience of low skilled Americans is a poor counterfactual for assessing how reductions in pay might affect jobless Germans.

Document Type: Original article

Affiliations: 1: Harvard University, National Bureau of Economic Research, and Centre for Economic Performance, LSE 2: Department of Economics and Policy Studies, Utrecht University, PO Box 80.140, NL-3508 TC Utrecht, The Netherlands. e-mail: r.schettkat@fss.uu.nl

Publication date: 2001-07-01

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Oxford Economic Papers is a general economics journal, publishing refereed papers in economic theory, applied economics, econometrics, economic development, economic history, and the history of economic thought. It occasionally publishes survey articles in addition to original papers. Books are not reviewed, but substantial review articles are considered. The journal occasionally publishes survey articles in addition to original papers, and occasionally publishes special issues or symposia.