The labour market situation of low-educated people is particularly critical in most advanced
economies, especially among youngsters and women. Policies aiming to increase their
employability either try to foster their productivity and/or to decrease their wage cost. Yet, the
evidence on the misalignment between education-induced productivity gains and corresponding
wage cost differentials is surprisingly thin, inconclusive and subject to various econometric biases.
We investigate this issue using rich Belgian linked employer-employee panel data for the period
1999-2010. Moreover, we provide first evidence on the moderating roles of age, gender and
industry in the relationship between education, productivity and wage costs. Controlling for
simultaneity issues, time-invariant workplace characteristics and dynamics in the adjustment
process of dependent variables, findings support the existence of a ‘wage-compression effect’, i.e. a
situation in which the distribution of wage costs is more compressed than the education-productivity
profile. This effect, robust across industries, is found to disappear among older cohorts of workers
and to be more pronounced among women than men. Overall, findings suggest that particular
attention should be devoted to the productivity to wage cost ratio of low-educated workers,
especially when they are young and female, but also to policies favouring gender equality in terms
of remuneration and career advancement
