Skill compression, wage differentials, and employment: Germany vs the US

Germany's more compressed wage structure is widely viewed as the main cause of the German-US difference in employment and unemployment, but part of th e compression is due to Germany having a narrower distribution of skills th an the US. Even adjusted for skills, however, we find that Germany has a mo re compressed wage distribution than the US. But relatively little of the U S-German employment difference can be attributed to the compressed wage dis tribution. We find that jobless Germans have nearly the same skills as empl oyed Germans and look more like average Americans than like low skilled Ame ricans, which runs counter to the wage compression hypothesis. Given these patterns, the pay and employment experience of low skilled Americans is a p oor counterfactual for assessing how reductions in pay might affect jobless Germans.