SSE/EFI Working Paper Series in Economics and Finance
No 638:
Wage Structure and Public Sector Employment: Sweden versus the United States 1970-2002
David Domeij ()
and Lars Ljungqvist ()
Abstract: Swedish census data and tax records reveal an astonishing
wage compression; the Swedish skill premium fell by more than 30 percent
between 1970 and 1990 while the U.S. skill premium, after an initial
decline in the 1970s, rose by 8--10 percent. Since then both skill premia
have increased by around 10 percentage points in 2002. Theories that
equalize wages with marginal products can rationalize these disparate
outcomes when we replace commonly used measures of total labor supplies by
private sector employment. Our analysis suggests that the dramatic decline
of the skill premium in Sweden is the result of an expanding public sector
that today comprises roughly one third of the labor force, and that
expansion has largely taken the form of drawing low-skilled workers into
local government jobs that service the welfare state.
Keywords: Skill premium; employment; private sector; public sector; Sweden; United States.; (follow links to similar papers)
JEL-Codes: E24; J31; (follow links to similar papers)
38 pages, September 16, 2006
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