Chapter

 Wage Compression and the Unemployment Crisis: Labor Market Institutions, Skills, and Inequality‐Unemployment Tradeoffs

David R. Howell and Friedrich Huebler

in Fighting Unemployment

Published in print February 2005 | ISBN: 9780195165845
Published online July 2005 | e-ISBN: 9780199835515 | DOI: http://dx.doi.org/10.1093/0195165845.003.0002
 Wage Compression and the Unemployment Crisis: Labor Market Institutions, Skills, and Inequality‐Unemployment Tradeoffs

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At the core of the orthodox view is the belief that policy makers face an ineluctable choice between employment and equality. With data from the OECD for the major affluent OECD countries, empirical support for a variety of tradeoffs is explored: between unemployment rates and earnings inequality; between the change in unemployment rates and the growth in earnings inequality; between unemployment inequality (high vs. low skill) and earnings inequality; and between employment rate inequality (high vs. low skill) and earnings inequality. The authors find little evidence for these predicted tradeoffs. The chapter also looks at skill distributions and finds that differences in institutions, not skill distributions, are the main source of cross-country differences in earnings inequality. They conclude that the labor market institutions that clearly compress wages do not appear to have similarly clear and substantial adverse effects on employment performance.

Keywords: inequality; tradeoff; skill mix; skill distribution; welfare state; labor market; regulation; unemployment; employment; deregulation; labor market institutions

Chapter.  12124 words.  Illustrated.

Subjects: Macroeconomics and Monetary Economics

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