Skill Compression, Wage Differentials and Employment: Germany vs. The Us

31 Pages Posted: 18 May 2000 Last revised: 18 Apr 2022

See all articles by Richard B. Freeman

Richard B. Freeman

National Bureau of Economic Research (NBER); University of Edinburgh - School of Social and Political Studies; Harvard University; London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP)

Ronald Schettkat

University of Wuppertal - Department of Economics

Date Written: March 2000

Abstract

Germany's more compressed wage structure is taken by many analysts as the main cause of the German-US difference in job creation. We find that the US has a more dispersed level of skills than Germany but even adjusted for skills, Germany has a more compressed wage distribution than the US. The fact that jobless Germans have nearly the same skills as employed Germans and look more like average Americans than like low skilled Americans runs counter to the wage compression hypothesis. It suggests that the pay and employment experience of low skilled Americans is a poor counterfactual for assessing how reductions in pay might affect jobless Germans.

Suggested Citation

Freeman, Richard B. and Schettkat, Ronald, Skill Compression, Wage Differentials and Employment: Germany vs. The Us (March 2000). NBER Working Paper No. w7610, Available at SSRN: https://ssrn.com/abstract=228091

Richard B. Freeman (Contact Author)

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University of Edinburgh - School of Social and Political Studies ( email )

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Ronald Schettkat

University of Wuppertal - Department of Economics ( email )

42097 Wuppertal
Germany

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