Working Paper: NBER ID: w7611
Authors: Richard Freeman; Ronald Schettkat
Abstract: Is the expansion of jobs in low-wage services in Europe restricted by high wages? With services now the main sector source of employment growth this question becomes crucial and we examine it through a detailed comparison of the role of low-wage services in the US and Germany. We find a clear low-wage service jobs deficit' in Germany but this is not due to excessively high German wages. Relative wages in low-wage sectors are extremely similar in the two countries. This is a striking finding given the much wider wage distribution in the US. The explanation for this phenomenon is the much greater intra-industry wage dispersion in the US producing similar industry mean wages as the much narrower German distribution.
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Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Low wage service employment in Germany (J39) | Smaller low wage service sector in Germany (J39) |
| Low wage service employment in Germany (J39) | Higher proportion of skilled workers in low wage service industries in Germany (J39) |
| Low wage service industries in Germany (J39) | Lower average wages than low wage service industries in the US (J31) |
| Rising ratio of low wage service employment to population in Germany (J39) | Changes in wage structures in Germany relative to the US (J31) |
| Concentration of low wage workers in limited industries in Germany (J69) | Dispersed nature of low wage employment across the US job market (F66) |
| Deficit in low wage services in Germany (J39) | Not attributable to excessively high wages or high reservation wages (J39) |