On the Determinants of the Skill Premium in Wages

Timo Vesala

Journal of Institutional and Theoretical Economics (JITE), 2008, vol. 164, issue 2, 195-210

Abstract: We study the determinants of the skill premium in a matching model where wages are set in bilateral meetings between workers and firms. As a novelty, disagreeing parties do not have to separate immediately, but they may opt to wait for competing agents to arrive. This waiting option is disproportionately valuable for high-skilled workers because they are better protected against competition. This gives rise to a wage schedule with increasing skill premia. The model can be seen to capture, e.g., the consequences of market decentralization, or deunionization, and it may help explain the observed Europe-U.S. differences in wage structure.

JEL-codes: J30 J31 J52 (search for similar items in EconPapers)
Date: 2008
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