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Why didn’t the college premium rise everywhere? Employment protection and on-the-job investment in skills

Author

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  • Doepke, Matthias
  • Gaetani, Ruben

Abstract

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.

Suggested Citation

  • Doepke, Matthias & Gaetani, Ruben, 2024. "Why didn’t the college premium rise everywhere? Employment protection and on-the-job investment in skills," LSE Research Online Documents on Economics 121605, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:121605
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    Cited by:

    1. Krenz, Astrid & Strulik, Holger, 2025. "Automation and the fall and rise of the servant economy," LSE Research Online Documents on Economics 126593, London School of Economics and Political Science, LSE Library.

    More about this item

    JEL classification:

    • I23 - Health, Education, and Welfare - - Education - - - Higher Education; Research Institutions
    • I20 - Health, Education, and Welfare - - Education - - - General
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs

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