TY  - RPRT
        AU  - Rosén, Åsa
AU  - Wasmer, Etienne
        TI  - Higher Education Levels, Firms' Outside Options and the Wage Structure
        PY  - 2002/Jan/
        PB  - Institute of Labor Economics (IZA)
        CY  - Bonn
        T2  - IZA Discussion Paper
        IS  - 420
        UR  - https://www.iza.org/index.php/publications/dp420
        AB  - We analyze the consequences of an increase in the supply of highly educated workers on
relative and real wages in a search model where wages are set by Nash-bargaining. The key
insight is that an increase in the supply of highly educated workers improves the firms’
outside option. As a consequence, the real wage of all workers decreases in the short-run.
Since this decline is more pronounced for less educated workers, wage inequality increases.
In the long-run a better educated work force induces firms to invest more in physical capital.
Wage inequality and real wages of highly educated workers increase while real wages of less
educated workers may decrease. These results are consistent with the U.S. experience in
the 70s and 80s. Based upon differences in legal employment protection we also provide an
explanation for the diverging evolution of real and relative wages in Continental Europe.
        KW  - creation costs
KW  - matching
KW  - firing costs
KW  - Wage inequality
        ER  -