Transatlantic Differences in Labour Markets: Changes in Wage and Non-Employment Structures in the 1980s and the 1990s

52 Pages Posted: 26 May 2005

See all articles by Patrick A. Puhani

Patrick A. Puhani

Leibniz Universität Hannover; University of St. Gallen - Swiss Institute for International Economics and Applied Economic Research; IZA Institute of Labor Economics; Université Paris II - Panthéon-Assas

Date Written: March 2005

Abstract

Rising wage inequality in the U.S. and Britain and rising continental European unemployment have led to a popular view in the economics profession that these two phenomena are related to negative relative demand shocks against the unskilled, combined with flexible wages in the Anglo-Saxon countries, but institutional rigidities in continental Europe('Krugman hypothesis').

This paper tests this hypothesis based on seven large person-level data sets for the 1980s and the 1990s. I use a more sophisticated categorisation of low-skilled workers than previous studies, which highlights the distinction between German workers with and without apprenticeship training. I find evidence for the Krugman hypothesis when Germany is compared to the U.S. However, supply changes differ considerably between countries, with Britain experiencing enormous increases in skill supply explaining the relatively constant British skill premium in the 1990s.

Keywords: Wage, earnings, unemployment, non-employment, rigidity, identification

JEL Classification: J21, J31, J64

Suggested Citation

Puhani, Patrick A., Transatlantic Differences in Labour Markets: Changes in Wage and Non-Employment Structures in the 1980s and the 1990s (March 2005). Available at SSRN: https://ssrn.com/abstract=729265 or http://dx.doi.org/10.2139/ssrn.729265

Patrick A. Puhani (Contact Author)

Leibniz Universität Hannover ( email )

Institut für Arbeitsökonomik
Koenigsworther Platz 1
30167 Hannover, DE 30167
Germany

University of St. Gallen - Swiss Institute for International Economics and Applied Economic Research ( email )

Dufourstr. 48
St. Gallen, 9000
Switzerland
+41 71 224 2341 (Phone)
+41 71 224 2298 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Université Paris II - Panthéon-Assas

12 place du Pantheon
Paris cedex 06, 75231
France

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