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Labor market institutions, wages and investment

Pischke, Jorn-Steffen (2004) Labor market institutions, wages and investment. CEPDP, 652. Centre for Economic Performance, London School of Economics and Political Science, London, UK. ISBN 0753017822

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Identification Number: 652


Labor market institutions, via their effect on the wage structure, affect the investment decisions of firms in labor markets with frictions. This observation helps explain rising wage inequality in the US, but a relatively stable wage structure in Europe in the 1980s. These different trends are the result of different investment decisions by firms for the jobs typically held by less skilled workers. Firms in Europe have more incentives to invest in less skilled workers, because minimum wages or union contracts mandate that relatively high wages have to be paid to these workers. I report some empirical evidence for investments in training and physical capital across the Atlantic, which is roughly in line with this theoretical reasoning.

Item Type: Monograph (Discussion Paper)
Official URL:
Additional Information: © 2004 Jorn-Steffen Pischke
Subjects: H Social Sciences > HD Industries. Land use. Labor
Sets: Collections > Economists Online
Research centres and groups > Centre for Economic Performance (CEP)
Departments > Economics
Date Deposited: 24 Jul 2008 14:59
Last Modified: 01 Oct 2010 09:13

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