published in: Applied Economics, 2005, 37 (9), 1073-1088
In this paper, we develop an allocation model of workers differentiated by their field of study
to test whether international differences in the wage structure can be explained by
differences in labor demand and supply in each country. The model explicitly takes into
account the effects of supply and demand shifts on the allocation structure to disentangle
country specific differences in the recruitment for one occupation from real supply-demand
effects. Empirical results based on data for nine countries show that cross-country
differences in wage inequality explain at least 2/3 of the differences in labor demand and
supply.
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