Labor Market Institutions, Wages and InvestmentCEP Discussion Papers from Centre for Economic Performance, LSE Abstract: Labor market institutions, via their effect on the wage structure, affect the investmentdecisions of firms in labor markets with frictions. This observation helps explain rising wageinequality in the US, but a relatively stable wage structure in Europe in the 1980s. Thesedifferent trends are the result of different investment decisions by firms for the jobs typicallyheld by less skilled workers. Firms in Europe have more incentives to invest in less skilledworkers, because minimum wages or union contracts mandate that relatively high wages haveto be paid to these workers. I report some empirical evidence for investments in training andphysical capital across the Atlantic, which is roughly in line with this theoretical reasoning. Keywords: Frictional labor markets; human capital; changes in wage inequality (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:cep:cepdps:dp0652 Access Statistics for this paper More papers in CEP Discussion Papers from Centre for Economic Performance, LSE |
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