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This chapter examines the impact of labour market regulation in Europe. It shows that regulation slows down flows out of unemployment, and contributes to the unemployment problem among young and low-skilled workers. Other than these, there is no consistent nor convincing evidence on the relationship between employment protection and unemployment in quantitative literature.

This chapter uses data from Denmark, Finland, Norway, Sweden, Belgium, France, Germany, Italy, the Netherlands, and the United States to review the general patterns about firm wage structure, promotion, hiring, and mobility patterns. It then explores the structure of wage levels and the alternative models of interpreting these structures, before turning to wage growth rates and mobility. The main finding is that countries are remarkably similar in their structures of wage levels and of wage changes. Despite very different labor institutions across countries, the evidence favoring high within-firm wage dispersion appears across countries. Mobility levels differ across countries, but even here, mobility patterns seem relatively consistent. Despite different labor market institutions, countries do not differ dramatically in their wage patterns. Firms that allow high wage spread also have higher wages. Thus, most firms have many different jobs within the firm; wage variance is high within firms.

Evidence of wide diffusion of the four types of employment systems is presented for major sectors within different countries, based on secondary data. It shows wide diffusion of both the ‘production’ and the ‘training’ approaches to skill organization, as well as for the ‘task‐oriented’ and ‘function‐oriented’ approaches to performance management, and their effects on wage structures. The countries surveyed included Britain, France, Germany, Japan, and the US.

This chapter, which explores the structure of wages within and between Belgian firms, also investigates how the productivity of these firms is affected by their internal wage dispersion. The bargaining regime in companies in the Belgian private sector does not derive directly from Canadian union membership. The data show that high-paying firms are characterized by a more dispersed wage structure. The bargaining regime has a crucial effect on the structure of wages even in a corporatist country such as Belgium. Following a 10 percent rise in wage inequality, productivity increases by approximately 2.1 percentage points more within firms that are essentially composed of blue-collar workers. The chapter also reveals that there is a lower pay spread within firms that are mainly composed of white-collar workers.

This chapter, which discusses the wage setting and employment protection institutions in Norway, also reports the Norwegian data sets. A large number of stylized facts regarding wage structure and labor mobility within and between Norwegian firms are then dealt with. The chapter covers the period from 1980 to 1997. The firms in the blue-collar data set are a subsample of the firms in the white-collar data set. White-collar wages are more strongly affected by firm heterogeneity, and are also under a more flexible regime in terms of wage setting. For high-level jobs, there is significant positive correlation between wage dispersion and entry. Wage dispersion among blue-collar workers is much smaller than among white-collar workers. Entry and exit rates are much higher for workers in low-level jobs than for workers in high-level jobs.

This chapter explains the institutional setting and the main actors of wage determination in the Netherlands. It also examines the impact of the centralized bargaining system on the Dutch wage structure, and the extent to which individual factors, developments at the firm level, and market developments determine wages. From 1999 to 2003, the Netherlands clearly experienced an increase in wage inequality, especially among men. The data suggest that wage formation in the Netherlands was determined mainly by the development of the scarcity of human capital on the one hand, and by individual career developments on the other. There was a general tendency for an increase in wage inequality as wages for workers with high incomes grew more than wages for low-wage workers. The structure of wages in the Netherlands is largely related to changes in the scarcity and value of human capital.

This chapter outlines the Swedish labor market institutions, the turbulent macroeconomic events of the 1990s, and the evolution of labor mobility and fixed-term contracts as a background to the later analysis of wages and mobility. It also reports detailed descriptive evidence of wages, wage changes, and mobility at the plant level in the Swedish private corporate sector for the years 1986, 1990, 1995, and 2000. The evolution of the wage structure is then covered. The data show that although the rate of real wage changes increasingly varies between plants, the variation of wage changes has remained stable within plants. The wage dispersion has increased quite consistently for the corporate sector and for the private corporate sector, where the dispersion has been relatively stable. Wages and productivity at the plant level are strongly positively correlated, both in levels and changes.

This chapter reports an econometric analysis of the wage structure in Finnish manufacturing industries. It attempts to illustrate how the last ten years have meant a gradual increase in the importance of firm-specific factors in pay determination. The Finnish wage bargaining system aims to control the average rate of wage growth while leaving relative wages to decentralized, plant-level, or individual decision making. The average wage of the lowest decile is about 57 to 59 percent of the mean wage in Finland, a couple of percentage points lower than in Sweden. The Finnish wage-setting institutions lead to fairly uniform wage increases. Those who change occupation or employer are exposed to higher variation of earnings growth. Wage setting is becoming a bit more firm specific, while centralized agreements on pay increases continue to be the main force that impacts the growth in average pay.

This chapter, which describes some key features of the labor market in Denmark, also addresses the important aspect of its functioning and flexibility: the high level of worker mobility. Then, it explores the wage structure between and within firms, and changes therein since 1980. The Danish labor market, which is characterized by both high job mobility and high wage mobility, has an institutional setup that strongly facilitates mobility. The observed increase in overall wage dispersion is predominantly due to increasing wage differentials between firms. Moreover, Denmark has experienced a shift in wage bargaining from a highly centralized system to a considerably more decentralized wage setting. There has been a clear increase in between-firm wage inequality. Although labor turnover rates are high, a considerable portion of workers are in long-term employment relationships.

This chapter, which deals with wage structure in France during the twenty years between 1976 and 1996 through the sieve of intra- and interfirm heterogeneity, evaluates the wage movements, as well as the wage dispersion and variation, through some sample statistics. Only when the unemployment rate decreased by a bit more than 1 percent between 1987 and 1989 did real wages fall. Reduction in labor cost leads to lower turnover for low-wage workers. Wage change for movers is much more dispersed, both in the upper part of the distribution and in the bottom part too. Correlation between the average wage in the firm and exit and entry rates is consistently negative throughout the years. A positive number of firms exhibit exit rates of one (the firm is destroyed). On average, 3 percent of the firms close every year.

This chapter charts the growing wage inequality in Britain over the past four decades: a rapid widening at both ends of the distribution in the 1980s; a more muted increase during the 1990s; and then in the 2000s, some improvement for the lowest paid, especially for women, and a renewed surge at the top. The evidence shows the wage distribution has been characterized by long-run growth in the relative demand for skills driven by technology change (rather than trade), and that changes in skill supply and institutional changes have affected the timing of how skill- and task-biased technical change impact upon the wage structure in different contexts.

This chapter discusses European wages and assesses wage flexibility across Europe. It focuses on how much wage flexibility exists, particularly, to what degree relative wages are capable of changing over time. This measurement is important as the rigidity of wages is a factor of the ability or inability of the country or region to respond to developing new technologies and to different labor demands. The chapter notes that there are substantial systematic adjustments in European relative wages between nations over time. Furthermore, it is the movement of macroeconomic variables such as investment, consumption, and effective tax rates which account for most of the variations in relative wage rates. Hence, unemployment in European countries is not caused by a rigid wage structure such as wages failing to drop lower, nor can it be solved by policies that tend to adjust relative wage rates.

This chapter investigates wage formation and inequality in Jordan. It takes stock of the main distributional features of the Jordanian wage structure focusing on population subgroups by gender, sector, occupational skill-level, industry, geographic location, and level of education as well as low-wage earners. It explores mobility within the distribution and to provide some explanation for the evolution of inequality, it estimates the returns to education, as well as sector-based and gender-based wage differentials. The results show a rise in real wages and a decline in inequality. Wages across different subgroups display compression from both ends of the distribution, with fewer Jordanians falling below the low-wage earnings line, and wages for the highest-paid groups declining. Rises in median wages hold across the population, even among more disadvantaged groups, for example the illiterate. Declining incremental returns to education and narrowing sector-based and gender-based wage differentials are consistent with the overall decline in wage inequality.

This chapter presents a theoretical and empirical study of how immigration influences the joint determination of the wage structure and internal migration behavior for native-born workers in local labor markets. Using data from the 1960–2000 decennial censuses, the study shows that immigration is associated with lower in-migration rates, higher out-migration rates, and a decline in the growth rate of the native workforce. The native migration response attenuates the measured impact of immigration on wages in a local labor market by 40 to 60 percent, depending on whether the labor market is defined at the state or metropolitan area level.

This chapter focuses on Europe, the scene of economic integration, the creation of the European Economic Union, and the establishment of the Eurozone. Chronic high unemployment is argued to be widespread because of the rigid structure of the European labor markets. This chapter examines the notion that the rigid labor markets are associated with high unemployment, and whether such rigidity in the market shows little flexibility over time. However, analysis of the problem in terms of the whole European region instead of a per country basis avoids the notion of rigid wage structures. Wage fluctuation and flexibility also become apparent. Some studies even show that European countries with strongly compressed wage distributions enjoy significantly lower unemployment rates. Thus, the labor market rigidity explanation as the cause of chronic European high unemployment is wrong.

This chapter shows that a model that captures the interconnections between firm dynamics, labour mobility, and specific human capital provides new explanations for and predictions on the US–Japanese differences in labour mobility, wage structure, and firm-sponsored training, based on cross-country differences in the importance of managerial capability. My argument is based on the idea that managerial capability increases its importance as an economy or an industry approaches the technological frontier. It also provides complementary explanations and predictions based on governmental interventions in firm dynamics, given that a guiding principle of Japanese industrial policy has been the regulation of so-called ‘excessive competition’.