Working Paper: NBER ID: w4678
Authors: Francine D. Blau; Lawrence M. Kahn
Abstract: While changes in the demand for skilled labor appear to have led to a widening of the wage structures in many countries during the 198Os,considerable differences in the level of wage inequality remain. In this paper, we examine the sources of these differences, focusing primarily on explaining the considerably higher level of wage inequality in the U.S. We find that the greater overall dispersion of the U.S. wage distribution reflects considerably more compression at the bottom of the distribution in the other countries, but relatively little difference in the degree of wage inequality at the top. While differences in the distribution of measured characteristics help to explain some aspects of the international differences, U.S. labor market prices--that is, higher rewards to labor market skills-are an important factor. Labor market institutions, chiefly the relatively decentralized wage-setting mechanisms in the U.S. compared to other countries, appear to provide the most persuasive explanation for these international differences in prices. In contrast, the pattern of cross-country differences in relative supplies of and demands for skills does not appear to be consistent with the pattern of observed differences in wage inequality.
Keywords: wage inequality; labor market institutions; male wages; international differences
JEL Codes: J31; J51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Labor market institutions (J08) | Wage inequality (J31) |
| Decentralized wage-setting mechanisms in the U.S. (J31) | Higher wage inequality (J31) |
| Centralized wage-setting in other countries (J39) | Less wage dispersion (J31) |
| Higher rewards to skills in the U.S. (J31) | Greater wage inequality (J31) |
| Higher unionization rates in other countries (J59) | Lower wage inequality (J31) |