Explaining international differences in male wage inequality by differences in demand and supply of skill

Abstract

According to Blau and Kahn (1996) international differences in male wage inequality cannot be explained by a simple model of supply and demand for skill. We provide compelling evidence that this conclusion is due to employing an inappropriate measure of skill. Their measure is based on the strong assumption that years of schooling and years of experience are comparable across countries. This paper employs a direct skill measure obtained from an international comparative literacy test. Using this alternative measure of skill, we find that international differences in male wage inequality by skill between the US on the one hand, and Canada, Germany, the Netherlands, Sweden and Switzerland on the other hand, are consistent with relative differences in demand and supply of skill