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


Muysken, Joan ; Zwick, Thomas


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URL: http://ub-madoc.bib.uni-mannheim.de/547
URN: urn:nbn:de:bsz:180-madoc-5471
Document Type: Working paper
Year of publication: 2000
Publication language: English
Institution: Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
MADOC publication series: Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Classification: JEL: O33 J24 J31 ,
Subject headings (SWD): USA , Deutschland , Arbeitsmarkt , Fertigkeit
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.
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Muysken, Joan ; Zwick, Thomas (2000) Wage Divergence and Unemployment: The Impact of Insider Power and Training Costs. Open Access [Working paper]
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