Publication: Declining returns to skill and the distribution of wages : Spain 1995-2006
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2012-11
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Abstract
In contrast to the pattern observed in other developed countries, Spanish wage inequality did not
increase during the period from 1995-2006. In this paper we analyse the relative role of supply and
demand factors when accounting for this “atypical” fact. Because noticeable changes in both labour
supply and labour demand - such as educational upgrading of the labour force, huge immigration
flows, and a boom in the construction sector - took place during these years, we start by
decomposing observed wage changes into changes in the composition of the labour force and
changes in the prices of workers’ and jobs’ characteristics. The results indicate that the compression
of the wage distribution is largely explained by a decrease in the returns to education. We also
provide some evidence of the relative impact of labour supply and labour demand factors on the
changes of these returns, showing that both the increase in the supply of high-skilled workers and the
increasing weight of low-skilled occupations are related to the decreasing trend in the skill premium
over this period.
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Wage structure, Quantile regressions, Composition effects, Polarization