Higher Education Levels, Firms’ Outside Options and the Wage Structure

Åsa Rosén and Etienne Wasmer

LABOUR, 2005, vol. 19, issue 4, 621-654

Abstract: Abstract. We analyze the consequences of an increase in the supply of highly educated workers on relative and real wages in a search model where wages are set by Nash bargaining. A key insight is that an increase in the average education level exerts a negative externality on wages through its positive externality on the firms’ outside option. As a consequence, the real wage of all workers decreases in the short run. Since this decline is more pronounced for less educated workers, wage inequality increases. In the long‐run a better educated work force induces firms to invest more in physical capital. Wage inequality and real wages of highly educated workers increase while real wages of less educated workers may decrease. These results are consistent with the US experience in the 1970s and 1980s. Based upon differences in legal employment protection we also provide an explanation for the diverging evolution of real and relative wages in Continental Europe.

Date: 2005
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1111/j.1467-9914.2005.00328.x

Related works:
Working Paper: Higher Education Levels, Firm's Outside Option and the Wage Structure (2005)
Working Paper: Higher Education Levels, Firm's Outside Option and the Wage Structure (2005)
Working Paper: Higher Education Levels, Firm's Outside Options and the Wage Structure (2002)
Working Paper: Higher Education Levels, Firms' Outside Options and the Wage Structure (2002)
Working Paper: Higher Education Levels, Firms' Outside Options and the Wage Structure (2001)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:labour:v:19:y:2005:i:4:p:621-654

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=1121-7081

Access Statistics for this article

LABOUR is currently edited by Franco Peracchi

More articles in LABOUR from CEIS Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().