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					Freeman, Richard B. “Working Under Different Rules”

Chap. 1, “How Labor Fares in Advanced Economies,” Freeman

Main idea: According to the general assumption, US has higher employment rates and better
standards of living than Europe. However, upon closer inspection, it seems as though US is no
longer the labor leader in the developed countries.

       US created more new jobs than Europe 1970s-1980s
        but much US job growth occurred in low-wage service industries
        and growth slowed in the 1990s
       US has a more flexible and mobile workforce
        this means high turn-over in employment AND unemployment
        firms with high flexibility hire more in good economic times, but less in bad times
       US has high productivity
        tho much of this is due to more hours worked per year in the US
        and productivity has slowed since the 90s
       US once was the leader in pay wages, but earnings fell in the 80s
        and the distribution of wages is very unequal
        low paid workers are worse-off in the US than other developed countries
       US did better than Europe in employment growth but worse in growth of wages and
        US paid for employment creation thru declining wages, while Europe paid for high wages
        with slow employment growth
       differences in labor market rules and institutions b/w US and Europe
             - in Europe, unions play an important role at the national level, as part of a social
                in the US, unions are business-oriented and locally based, and business sought to
                create a “union-free” environment in the 80s and 90s
             - US has decentralized wage setting, which high flexibility in different situations,
                but it also leads to large pay differentials for similar workers
                Europe has centralized wage setting, which means that negotiators consider the
                effect of wage settlements on the entire economy, but it also limits flexibility
             - European governments mandate more rights and benefits for workers than the US
             - Europe has more welfare programs than US

Chap 2, “Rising Wages Inequity: The Unites States vs. Other Advanced Countries,” Freeman and

Main idea: US has higher wage differentials than Europe and Japan, because of differences in
skilled labor supply, and in the importance of institutions in wage-setting, unions in particular.

       increase of income inequality and decline in living standards in the US in the 1980s
       in the US, wage differentials increased in the 80s
        real earnings of less educated and lower paid fell
        middle class percentage decreased, as top and bottom classes grew
        education became more important for new entrants to the job market
        tho gender differences in wages decreased
      in other developed countries, wage differentials changed differently
       some saw small increases in wage differentials, others saw decreases, others experiences
       only the UK experienced comparable increases to the US
       but even in the UK, the real earnings of the lower-paid increased
       US low-paid workers are the worst-off
     the exceptional experience of the US is due to:
    1. shifts in demand favoring skilled workers and reduced growth in their relative supply
       combined to increase wage differentials in US in the 80s
           - demand for skilled labor increased in the 80s, b/c of internationalization and
                technological developments
           - supply of skilled workers increased in the 70s, but declined in the 80s
                immigration brought more uneducated workers into the labor force
    2. role of institutions: decline of unionization
     why other countries fares differently
           - same increases in demand, but growth of educated workers increases in Europe
                and Japan in the 80s
           - Europe has centralized wage-setting institutions and strong unions
     2 strategies to reduce wage differentials
           - European model of greater institutional influence (tho risk of stagnant
           - combination of institutional wage interventions and education and training
                systems that invest in non-college educated workers

Chap 3, “Payoffs to Alternative Training Strategies at Work,” Lynch

Main idea: Looks at differences in training systems between US and Europe and Japan. These
differences reflect the extent of government and institutional support of training.

Key terms:
training deficit: problem new entrants and older workers face in acquiring skills

       differences in training systems (focus on first 3):
            - US “learning by doing” system
                training system is decentralized, informal and firm-specific
            - Japan: low turn-over and firm-training system
                firms captures the cost of training be making it costly for employers to leave
            - Germany: apprenticeship training system
                a tripartite structure of employers, unions and governments that determines a
                national strategy for training
            - Nordic countries: government-led and school-based training system
            - France: employer training tax
       differences in prior education:
            - US ends up w/ less qualified workers, partly b/c their initial skill level is low, due
                to the education they received before entering the work force
            - in Japan and Germany, work skills are tied to education
       differences in economies and labor markets
            - US has a highly mobile labor market and no national skills certification system
             firms are reluctant to invest in general training, for fear that trained workers will
         - Japan’s market offers lifetime employment and limited mobility
   differences in institutional supports:
         - US has a decentralized training system, with relatively low unionization
         - German apprenticeship system is bolstered by a range of institutional structures,
             and unions in particular
             German training system aims to develop general skills
         - in Japan, the link b/w employers and schools supports the training structure
             other institutions that support training are the government, thru subsidies, and
             banks, thru long-term loans
   training outcomes: returns to individuals
         - workers receive payoffs from company-provided training
         - workers in the US do not gain from previous on-the-job training
         - company-based training and apprenticeships have higher returns than
             government-led or school-based training
   lessons for alternative US training policies
         - employer participation in training can increase the probability that skills will be
             related to demands
         - employee representation ensures that training will include general skills
         - nationally recognized certification of skills
             benefit employers with lower wages during training (apprenticeship)
             and it would benefit workers by providing marketable skills

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