Skills, Employment, and Labor Market Institutions

Periodical
LABOUR
Volume
34
Year
2020
Issue number
3
Page range
277-304
Access date
March 23, 2023
Relates to study/studies
PIAAC Cycle 1

Skills, Employment, and Labor Market Institutions

Evidence from PIAAC

Abstract

Hanushek et al (2015, `Returns to Skills Around the World: Evidence from PIAAC', European Economic Review 73: 103) find a weak wage-skill relationship in countries with limited skill reward possibilities due to high union density, strict employment protection, and large public sector. If these factors also restrict employment possibilities and the incentives to join the labor market, a possible mirror image of the weak wage-skill relationship is a steeper employment-skill gradient. We use PIAAC data to estimate the employment-skill association, and the results for the whole sample of individuals give some indication that the employment-skill gradient is steeper in countries with strict employment rules and centralized bargaining. Our results for subgroups show imprecisely estimated employment-skill gradients for immigrants. For individuals with poor health conditions and low formal education, the estimated gradient is somewhat higher than in the whole sample in countries with high bargaining coverage, a large public sector, and centralized collective bargaining systems.