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Public Sector Employment and the Skill Premium: Sweden versus the United States 1970–2012

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  • David Domeij
  • Lars Ljungqvist

Abstract

Swedish census data and tax records reveal an astonishing decline in the aggregate skill premium of 30 percent between 1970 and 1990, with only a modest recovery in the next couple of decades. In contrast, the US skill premium rose by around 24 percent over those four decades. A theory that equalizes wages with marginal products can rationalize these disparate outcomes when we replace commonly used measures of total labor supplies by private sector employment. The dramatic decline in the skill premium in Sweden is the result of an expanding public sector that has disproportionately hired unskilled labor.

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  • David Domeij & Lars Ljungqvist, 2019. "Public Sector Employment and the Skill Premium: Sweden versus the United States 1970–2012," Scandinavian Journal of Economics, Wiley Blackwell, vol. 121(1), pages 3-31, January.
    • Handle: RePEc:bla:scandj:v:121:y:2019:i:1:p:3-31
    DOI: 10.1111/sjoe.12284
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    Cited by:

    1. Castex, Gonzalo & (Stanley) Cho, Sang-Wook & Dechter, Evgenia, 2022. "The decline in capital-skill complementarity," Journal of Economic Dynamics and Control, Elsevier, vol. 138(C).
    2. Nida Çakır Melek & Musa Orak, 2023. "The Role of Technology and Energy Substitution in Climate Change Mitigation," Research Working Paper RWP 23-15, Federal Reserve Bank of Kansas City.
    3. Garibaldi, Pietro & Gomes, Pedro & Sopraseuth, Thepthida, 2021. "Public employment redux," Journal of Government and Economics, Elsevier, vol. 1(C).
    4. Lee Ohanian & Musa Orak & Shihan Shen, 2023. "Revisiting Capital-Skill Complementarity, Inequality, and Labor Share," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 51, pages 479-505, December.
    5. Jørn Rattsø & Hildegunn E Stokke, 2024. "Public sector wage compression and wage inequality: gender and geographic heterogeneity," Oxford Economic Papers, Oxford University Press, vol. 76(3), pages 722-740.
    6. Chassamboulli, Andri & Gomes, Pedro, 2023. "Public-sector employment, wages and education decisions," Labour Economics, Elsevier, vol. 82(C).
    7. Diogo Baerlocher, 2022. "Public employment and economic growth," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 73(1), pages 211-236, February.
    8. Knoblach, Michael, 2019. "Skill-biased technological change, endogenous labor supply, and the skill premium," CEPIE Working Papers 03/19, Technische Universität Dresden, Center of Public and International Economics (CEPIE).
    9. Olovsson, Conny & Walentin, Karl & Westermark, Andreas, 2021. "Dynamic Macroeconomic Implications of Immigration," Working Paper Series 405, Sveriges Riksbank (Central Bank of Sweden), revised 01 May 2024.

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