We consider the economic implications of a compressed wage structurewhich is exogenously determined by institutions. An importantfeature of our analysis is that human capital is endogenous and canbe achieved either as formal education or as informal training withinfirms after entering the labour market. While institutional wage compressiondecreases the incentives of individuals to become educated, itincreases the incentives of firms to invest in training. As a result, thenet effects of wage compression on the aggregate human capital leveland GDP are ambiguous. Moreover, with wage compression, a skillbiasedtechnological change may cause wage inequality to decrease.Keywords: Wage compression, training, education, inequality, institutions,skill-biased technological change.JEL: I21, J31, J5, O33.
|Place of Publication||København|
|Number of pages||28|
|Publication status||Published - 2003|