Unemployment and Wage Inequality in OECD Countries

This paper surveys the main changes in the level of employment and in the wage structure in OECD countries during the last two decades. Despite a slowdown in the growth rates of output and productivity, employment has continued to grow in the OECD countries. The working age population has also continued to grow in most countries, with substantial increases in the female participation due to late entry and early retirement for both men and women. It is argued that the growth in unemployment which has been the most serious labour market development for many of the countries cannot be attributed to demographic, to macroenomic or to institutional supply side factors, but rather has been caused by major and pervasive shifts in the demand for labour by skill attributable primarily to technological innovation. The main evidence for this is the widening of the wage distribution in the United States and in other countries such as the UK where market forces have not been suppressed. The widening of the wage distribution has helped to preserve low skills jobs (more successfully perhaps in the US than in Britain). The paper describes the main institutional impediments to widening the wage distribution in other countries, including the role of trade unions, employment protection and minimum wage legislation and the unemployment benefit system. While in the longer term the improvements in education and training currently taking place can be expected to substantially alleviate the skills imbalance, in the short run the pressures of increasing integration market forces will impose heavy strains on social institution designed to assist the needy.