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Labor Market Institutions, Wages, and Investment

Jorn-Steffen Pischke

No 1268, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Labor market institutions, via their effect on the wage structure, affect the investment decisions of firms in labor markets with frictions. This observation helps explain rising wage inequality in the US, but a relatively stable wage structure in Europe in the 1980s. These different trends are the result of different investment decisions by firms for the jobs typically held by less skilled workers. Firms in Europe have more incentives to invest in less skilled workers, because minimum wages or union contracts mandate that relatively high wages have to be paid to these workers. I report some empirical evidence for investments in training and physical capital across the Atlantic, which is roughly in line with this theoretical reasoning.

Keywords: changes in wage inequality; human capital; frictional labor markets (search for similar items in EconPapers)
JEL-codes: E22 E24 J23 J24 J31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-reg
Date: 2004-08
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Published in: CESifo Economic Studies, 2005, 51 (1), 47-75

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Working Paper: Labor Market Institutions, Wages and Investment (2004) Downloads
Working Paper: Labor Market Institutions, Wages and Investment (2004) Downloads
Working Paper: Labor market institutions, wages and investment (2004) Downloads
Working Paper: Labor Market Institutions, Wages, and Investment (2004) Downloads
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