Abstract
In this paper I analyze changes in the wage distribution in the Netherlands. I use a matched employer-employee dataset that covers the population of employees. Wage inequality increases over the period of 2001–2016. Changes in between-firm wage components are responsible for nearly the entire increase. Increases in the variance of workers’ skills and increases in worker sorting and worker segregation explain the majority of the rise in the variance of wages. These changes are accompanied by a pattern where variation in educational degree and firm average wages become more correlated over time. Finally, it is suggested that labor market institutions in the Netherlands play an important role in mediating overall wage inequality.
Highlights
Wage inequality has increased in most industrialized economies since the 1970s1
I provide some illustrative evidence that shows — in line with the findings reported in the earlier sections of this paper — similar patterns for the distribution of skills across firms as measured by the level of education
Technological change leads to an increase in the relative demand for skilled jobs, as well as an increase in the demand for low-skilled jobs, because these jobs cannot be automated, and results in a decrease in the relative demand of middle-skilled jobs, which are typically characterized by routine manual and cognitive skills
Summary
Wage inequality has increased in most industrialized economies since the 1970s1. The Netherlands has long been considered an exception to this trend, because wage inequality has remained relatively stable, at the highest levels of the wage distribution (Atkinson and Salverda 2005). Ter Weel (2003) shows that the gap between the 10th and 90th percentile of wages increased by less than 2% between 1992 and 1998, while Groot and Groot (2011) show that between 2000 and 2008 wage dispersion increased slightly in the upper half of the wage distribution. The literature on Dutch wage inequality in recent years is limited and as I show in this article, the Netherlands experienced increases in wage dispersion
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