Beaudry, Paul and David A. Green. 2003. "Wages and Employment in the United States and Germany: What Explains the Difference?" American Economic Review, 93: 3 (June): pp. 573-602. Abstract: "Over the last 20 years the wage-education relationships in the United States and Germany have evolved very differently, while the education compositions of employment have evolved in a parallel fashion. In this paper, we show how these patterns shed light on the nature of recent technological change and highlight the importance of taking into account movements in the ratio of human capital to physical capital when examining changes in the returns to skill. Our analysis indicates that the United States could have prevented the increase in wage inequality observed in the 1980's by a faster accumulation of physical capital." 573: "employment rate changes for less educated men were almost identical in the United States and Germany over the 1980's even though wage changes differed substantially. It is true that over this period unemployment rates increased in Germany while they decreased in the United States. However, it is now well documented that the increase in unemployment in Germany was not particularly concentrated among the less skilled workers (see Peter Gottschalk and Timothy M. Smeeding, 1997). In effect, the increase in unemployment has been proportionally spread across the skill spectrum, allowing the education mix of the employed population to evolve very similarly in Germany and the United States. These observations lead us to the following question: How could the wage structures in the United States and Germany diverge over the 1980's and 1990's, while the skill structures of employment did not?" [Gottschalk, Peter and Timothy M. Smeeding. 1997. "Cross-National Comparison of Earnings and Income Inequality." Journal of Economic Literature, 35: 2 (June): pp. 633-87.] 574: "Our main quantitative finding in this regard is that differences in physical capital intensity movements are key to reconciling the wage and employment movements observed in the United States and Germany. In particular, over the period 1979-1996, we document that the United States has moved along the estimated wage factor-use frontier in a direction characterized by an underaccumulation of physical capital relative to human capital while Germany has moved in a direction closer to the balanced path. This finding implies that much of the increase in wage inequality observed in the United States over the 1980's could have been avoided, ceteris paribus, by a faster accumulation of physical capital." 597: "Our main findings are (1) that changes in wages and factor use in these countries conform to the predictions of a simple endogenous organizational choice model assuming the new technology is skill-biased, satisfies capital-skill complementarity and is capital efficient, and (2) the marginal product surface we identified is characterized by the existence of a balanced path whereby an over-accumulation of physical capital relative to human capital is associated with a flattening and upward shift of the wage-education profile. In particular, our estimates suggest that the United States moved along the marginal product surface in a manner characterized by an underaccumulation of physical capital while Germany has followed a more balanced path."
-- Michael Perelman Economics Department California State University michael at ecst.csuchico.edu Chico, CA 95929 530-898-5321 fax 530-898-5901
