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Supply and Demand Factors in Understanding the Educational Earnings Differentials: West Germany and the United States

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  • Gulgun Bayaz Ozturk

Abstract

This paper uses data from the March Current Population Survey and German Socio-Economic Panel to investigate the role of market forces and the institutional constraints in explaining the educational earnings differentials in the United States and West Germany. We make use of simple supply and demand framework to differentiate the effects of market forces from wage-setting institutions. Results indicate that differential growth in the relative employment of skilled workers is responsible for the differences in returns to skill in both countries over the period of analysis. In particular, rising educational attainment is the major factor underlying the changes in the employment of skilled workers in each country and it is followed by institutional factors. However, in addition to the differential growth in relative demand for skilled labor, differences in wage-setting institutions explain most of the cross-country differences in skill premia. We also provide evidence for polarization of jobs which is a recent phenomenon in both labor markets.

Suggested Citation

  • Gulgun Bayaz Ozturk, 2011. "Supply and Demand Factors in Understanding the Educational Earnings Differentials: West Germany and the United States," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 8(2), pages 235-263, December.
    • Handle: RePEc:liu:liucej:v:8:y:2011:i:2:p:235-263
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    References listed on IDEAS

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    More about this item

    Keywords

    Earnings differentials; relative demand and supply of skills; skill premium; polarization.;
    All these keywords.

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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