Working Paper: NBER ID: w27331
Authors: Matthias Doepke; Ruben Gaetani
Abstract: Why has the college wage premium risen rapidly in the United States since the 1980s, but not in European economies such as Germany? We argue that differences in employment protection can account for much of the gap. We develop a model where firms and workers make relationship-specific investments in skill accumulation. The incentive to invest is stronger when employment protection creates an expectation of long-lasting matches. We argue that changes in the economic environment have reduced relationship-specific investment for less-educated workers in the United States, but not for better-protected workers in Germany.
Keywords: No keywords provided
JEL Codes: E24; J24; J31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Employment Protection (J68) | Skill Accumulation (J24) |
| Skill Accumulation (J24) | College Wage Premium (J31) |
| Employment Protection (Germany) (J53) | Skill Accumulation (College and Less-Educated Workers) (J24) |
| Lack of Employment Protection (US) (J63) | Relationship-Specific Investments (Less-Educated Workers) (J24) |
| Increase in Productivity Shocks (O49) | College Wage Premium (US) (J31) |
| Increase in Productivity Shocks (O49) | Relationship-Specific Investments (Less-Educated Workers, US) (J24) |
| Employment Protection (Germany) (J53) | College Wage Premium (J31) |