Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/56108
Authors: 
Domeij, David
Ljungqvist, Lars
Year of Publication: 
2006
Series/Report no.: 
SSE/EFI Working Paper Series in Economics and Finance 638
Abstract: 
Swedish census data and tax records reveal an astonishing wage compression; the Swedish skill premium fell by more than 30 percent between 1970 and 1990 while the U.S. skill premium, after an initial decline in the 1970s, rose by 8 - 10 percent. Since then both skill premia have increased by around 10 percentage points in 2002. Theories that equalize wages with marginal products can rationalize these disparate outcomes when we replace commonly used measures of total labor supplies by private sector employment. Our analysis suggests that the dramatic decline of the skill premium in Sweden is the result of an expanding public sector that today comprises roughly one third of the labor force, and that expansion has largely taken the form of drawing low-skilled workers into local government jobs that service the welfare state.
Subjects: 
skill premium
employment
private sector
public sector
Sweden
United States
JEL: 
E24
J31
Document Type: 
Working Paper

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