Wage Dispersion, Markets and Institutions: The Effects of the Boom in Education on the Wage Structure

44 Pages Posted: 24 Jul 2006

See all articles by Erling Barth

Erling Barth

Institute for Social Research, Norway; Department of Economics, University of Oslo; IZA Institute of Labor Economics

Claudio Lucifora

Università Cattolica del Sacro Cuore di Milano ; IZA Institute of Labor Economics

Date Written: June 2006

Abstract

In this paper, we investigate the effects of the boom in education on the wage structure in Europe. We use detailed information on the distribution of wages, estimated from microdata from 12 European countries from the beginning of the 1980's to the present, to analyse the changes both between and within groups. We specify and estimate a model with supply and demand for different types of labour, as well as institutions affecting the bargained relative wage. Our results show that the boom in education closely matched the shifts in demand due to (skill biased) technological change, which in turn explains why the wage premia for education only rose moderately. We use the conditional wage spread within tertiary education, predicted from quantile log wage regressions, to investigate the hypothesis of skills erosion as a result of the large expansion in tertiary education. We find no evidence in favour of the hypothesis that the boom in higher education lead to an erosion of skills within the group of tertiary education, nor evidence of increasing "over-education" in Europe. Labour market institutions also matter: bargaining co-ordination and employment protection are shown to have a compressing effect on wages, but at different points of the wage distribution.

Keywords: wage inequality, education, labour market institutions

JEL Classification: J3, J5, P5

Suggested Citation

Barth, Erling and Lucifora, Claudio, Wage Dispersion, Markets and Institutions: The Effects of the Boom in Education on the Wage Structure (June 2006). IZA Discussion Paper No. 2181. Available at SSRN: https://ssrn.com/abstract=918725

Erling Barth

Institute for Social Research, Norway ( email )

Munthesgate 31
0260 Oslo
Norway

Department of Economics, University of Oslo ( email )

PO Box 6706 St Olavs plass
Oslo, N-0317
Norway

IZA Institute of Labor Economics

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

Claudio Lucifora (Contact Author)

Università Cattolica del Sacro Cuore di Milano ( email )

Department of Economics and Finance
Largo Gemelli, 1
20123 Milano
Italy
+39 027 234 2525 (Phone)
+39 027 234 2781 (Fax)

IZA Institute of Labor Economics

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

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