Labour Market Implications of a Compressed Wage Structure When Education and Training are Endogenous

27 Pages Posted: 30 Jul 2003

See all articles by Nikolaj Malchow-Moeller

Nikolaj Malchow-Moeller

Copenhagen Business School - Center for Economic and Business Research (CEBR); University of Southern Denmark

Jan Rose Skaksen

Copenhagen Business School - Department of Economics; IZA Institute of Labor Economics

Abstract

We consider the economic implications of a compressed wage structure which is exogenously determined by institutions. An important feature of our analysis is that human capital is endogenous and can be achieved either as formal education or as informal training within firms after entering the labour market. While institutional wage compression decreases the incentives of individuals to become educated, it increases the incentives of firms to invest in training. As a result, the net effects of wage compression on the aggregate human capital level and GDP are ambiguous. Moreover, with wage compression, a skill-biased technological change may cause wage inequality to decrease.

Keywords: Wage compression, training, education, inequality, institutions, skill-biased technological change

JEL Classification: I21, J31, J5, O33

Suggested Citation

Malchow-Moeller, Nikolaj and Skaksen, Jan Rose, Labour Market Implications of a Compressed Wage Structure When Education and Training are Endogenous. Center for Economic and Business Research Working Paper No. 2003-09. Available at SSRN: https://ssrn.com/abstract=419342

Nikolaj Malchow-Moeller (Contact Author)

Copenhagen Business School - Center for Economic and Business Research (CEBR) ( email )

Solbjerg Plads 3
Copenhagen, DK-2000
Denmark

University of Southern Denmark

Campusvej 55
DK-5230 Odense, 5000
Denmark

Jan Rose Skaksen

Copenhagen Business School - Department of Economics ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark
+45 38152582 (Phone)
+45 3815 2576 (Fax)

HOME PAGE: http://old.cbs.dk/staff/janroseskaksen/

IZA Institute of Labor Economics

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

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