Wage Divergence and Unemployment: The Impact of Insider Power and Training Costs

28 Pages Posted: 9 Nov 2003

See all articles by Joan Muysken

Joan Muysken

University of Maastricht

Thomas Zwick

University of Würzburg - Business Administration & Economics; Centre for European Economic Research (ZEW); Maastricht University - Research Centre for Education and the Labour Market (ROA)

Date Written: July 2000

Abstract

The US labour market is characterized by a high skill wage mark-up and low unemployment, while the German labour market has a low skill wage mark-up and a high, mainly unskilled unemployment rate. This paper adds an innovative labour supply explanation to the discussion how these distinct labour market equilibria could arise. Skill-biased technological change induces training needs for the employees willing to work in the skilled labour market and increases relative skill demand. In a simple general equilibrium model, this paper shows that skilled insiders in the USA enjoy higher rents and increase the skilled wage mark-up stronger than in Germany in the wake of skill-biased technological change. The reason is that the unskilled outsiders in the USA do not possess a powerful credible threat to improve their position. This is a consequence from higher training and education costs in the USA for unskilled employees and unemployed. In Germany, the lower skill wage mark-up leads to an increased relative skill demand which is not matched by the skill supply and therefore mis-match unemployment arises.

Keywords: Mis-match unemployment, training costs, skill biased technological change, Labour supply

JEL Classification: J24, J31, O33

Suggested Citation

Muysken, Joan and Zwick, Thomas, Wage Divergence and Unemployment: The Impact of Insider Power and Training Costs (July 2000). ZEW Discussion Paper No. 00-37. Available at SSRN: https://ssrn.com/abstract=373941 or http://dx.doi.org/10.2139/ssrn.373941

Joan Muysken

University of Maastricht ( email )

P.O. Box 616
Maastricht, 6200MD
Netherlands

Thomas Zwick (Contact Author)

University of Würzburg - Business Administration & Economics ( email )

Sanderring 2
Wuerzburg, D-97070
Germany

Centre for European Economic Research (ZEW) ( email )

P.O. Box 10 34 43
L 7,1 D-68161 Mannheim
Germany

Maastricht University - Research Centre for Education and the Labour Market (ROA) ( email )

P.O. Box 616
Maastricht, MD6200
Netherlands

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