Why Didn't the College Premium Rise Everywhere? Employment Protection and On-the-Job Investment in Skills

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TextPublication details: American Economic Journal: Macroeconomics; 2024Description: 268-309ISSN:

1945-7707

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Summary: Why has the college wage premium risen rapidly in the United States since the 1980s but not in European economies such as Germany? We argue that differences in employment protection can account for much of the gap. We develop a model in which firms and workers make relationship-specific investments in skill accumulation. The incentive to invest is stronger when employment protection creates an expectation of long-lasting matches. We argue that changes in the economic environment have reduced relationship-specific investment for less educated workers in the United States, but not for better-protected workers in Germany.

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Item type	Current library	Vol info	Status	Barcode
Article Index	Dr VKRV Rao Library	Vol. 16, No. 3	Not for loan	AI378

Why has the college wage premium risen rapidly in the United States since the 1980s but not in European economies such as Germany? We argue that differences in employment protection can account for much of the gap. We develop a model in which firms and workers make relationship-specific investments in skill accumulation. The incentive to invest is stronger when employment protection creates an expectation of long-lasting matches. We argue that changes in the economic environment have reduced relationship-specific investment for less educated workers in the United States, but not for better-protected workers in Germany.

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