• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Why has the relative pay of more qualified workers risen more strongly in the UK and the US than in other advanced economies during the past two decades?

Extracts from this document...


Why has the relative pay of more qualified workers risen more strongly in the UK and the US than in other advanced economies during the past two decades? During the 1980's and continuing in the 90's, the US and the UK had exceptional increases in earnings inequality and in wage differentials by skill category. The rise in inequality in the US was associated with large declines in real wages for low-paid workers. Most other developed countries had moderate increases or in some cases effectively no rise in wage inequality. So how do we explain the different paths of the U.S. and the U.K.? The key forces behind the rise in inequality appear to be the demand for and supply of skills i.e. a secular shift in relative labour demand favouring more educated workers and workers with problem solving skills compared to a slowdown in the growth rate of the supply of highly educated workers relative to less educated workers. The role of labour institutions is also a very important component of the explanation and the move to decentralisation of bargaining in the UK and the decline in Trade Unionism in the US are key factors that we will explore. Let us first look at the empirical findings for the US and UK, compared to the rest of the advanced economies. IN the US, from the late 70's to the early 90's wage dispersion increased dramatically for both men and women. ...read more.


Lynch (1994) also argues education and training market institutions which determine the level of workplace skills for the less educated will also mediate the effect of market forces on wages and employment. Also social insurance and income maintenance institutions, which are generous, allow workers to remain jobless for a longer period can reduce their willingness to take low wages to obtain work reducing the supply side pressures that force low-skilled pay down. Thirdly, the changes that occur institutionally and politically such as product market deregulation and changes in unionization (as in the U.S) play an important role. There is a dual causality issue though in that these institutions respond to the changes in supply and demand and are not just exogenous. Let us look at how this framework can help us analyse the different outcomes of the US and the UK. Labour demand factors (i.e. the increasing demand for skilled labour) do not explain much of the differential growth of wage inequality or educational earnings differentials among countries in the 1980's. The shift in labour demand appears to be driven in part by skill-biased technological change partially associated with the "computer revolution" and by growing internationalization of trade with NIC's and LDC's, and immigration. All advanced economies experienced large, steady shifts in the industrial and occupational structure of employment toward sectors and job categories that use a greater proportion of more educated workers (OECD 1994b). ...read more.


Hence the increasing product market competition and the internationalization of trade and the skill biased technological change that went with it reduced the power of wage setting institutions and the demand for them. Of course in the UK, the Thatcher Governments distrust and hatred of the unions was a politically driven factor that further accelerated reduced unionism within the UK. In conclusion we see that the skill biased technological change industry is going through is a very important vehicle for the trends in inequality that we are now seeing. For this is driving the demand for skilled labour and this in turn interacts with the level of supply of skilled workers. In the early 80's while supply fell behind demand, this created higher college wage premiums in the UK and the US. However these were not matched by other countries crucially because of differences in the level of centralised wage setting and collective bargaining within countries and the change in the importance of these institutions and forms of wage setting that occurred. In Britain and the U.S the weakening of the unions and decentralisation let the market forces of supply and demand exacerbate the inequality in the wage distribution. But we also saw how it was the changing nature of product markets that also affected the nature of industrial relations within these countries in particular. The U.S system of wage setting was fundamentally market driven and in Britain the political will of the Conservatives, made Unionism weaker in the face of the changing nature of the product market. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our GCSE Economy & Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related GCSE Economy & Economics essays

  1. Why has Nucor performed so well in the past?

    There were three components to this capability. Firstly, Nucor utilised combination of research and development activities that refined speed and efficiency of the production process. Nucor had "invested steadily and heavily in upgrading its capacity, old as well as new," (Nucor Case, 1990)

  2. The Nature of Macroeconomics

    * Economic growth = increasing real GDP * Expanding national productive capacity, increasing the quantity of goods and services produced in an economy * Nominal GDP = current prices x output * Real GDP = constant prices x output What is the significance of economic growth?

  1. An Empirical Investigation into the Causes and Effects of Liquidity in Emerging

    Therefore, the WTI benchmark will be most significant to this analysis. Many EMEs remain dependent on a few primary commodities for a large part of their export receipts, and the single significant commodity is oil, accounting for around a third of commodity exports from the major EMEs.

  2. The "Thatcher Revolution".

    They espoused to her ideas in many principles pertaining to British public policy. I believe that the Thatcher Revolution was very successful in the majority of tasks that it set out to accomplish. Margaret Thatcher came into at a time when Britain was at a very precarious junction in its history.

  1. Advantages and disadvantages of minimum wage.

    making less money available for potential domestic entrepreneurs in the private sector. A high minimum wage also means that companies will have to sell at higher prices. This results into inflation. Inflation has very severe long-term effects within the nation and abroad in the international markets.

  2. The structure of the airline industry.

    These numbers are not indicative of the rapid economic expansion that was occurring at this time. We would expect higher rates of inflation under these conditions. One thing that has helped to keep inflation under control in the late 1990's is the fact that capacity utilization has stayed below 85%,

  1. The Ohio Pilot Scholarship Program

    Or are the changes which all of these cities are undergoing a form of power struggle over 'place-making'? Are we dealing with a time-compressed version of homo faber's freedom both to produce and to destroy? This problem of the hermeneutics of place is an important theme in The Culture of Cities research project.

  2. The project objective is to investigate the practices of privatization in traditional market economies ...

    These include capital market, political, and firm-specific factors. Specifically, they found that SIP is the preferred choice when 1) there is more even distribution of income, 2) the government hopes to simultaneously develop the capital market, and 3) the state business is profitable.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work