We consider the economic implications of a compressed wage structure which is exogenously determined by institutions. An important feature of our analysis is that human capital is endogenous and can be achieved either as formal education or as informal training within firms after entering the labour market. While institutional wage compression decreases the incentives of individuals to become educated, it increases the incentives of firms to invest in training. As a result, the net effects of wage compression on the aggregate human capital level and GDP are ambiguous. Moreover, with wage compression, a skill biased technological change may cause wage inequality to decrease.
|Place of Publication||København|
|Publisher||Centre for Economic and Business Research, Copenhagen Business School|
|Number of pages||28|
|Publication status||Published - 2003|
|Series||CEBR Discussion Paper|
- Wage compression
- Skill-biased technological change