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Labor Market Institutions, Wages and Investment

Overview 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. This paper reports some empirical evidence for investments in training and physical capital across the Atlantic, which is roughly in line with this theoretical reasoning.

Further White Paper Details
Publisher	London School of Economics and Political Science	File Format	PDF, requires Acrobat Rdr 5
Date Published	September 2004	Downloads	8
Format	White Papers
Topics	Human Capital Management

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