Wage Compression in Europe: First Evidence from the Structure of Earnings Survey 2002

This paper aims at examining wage compression in Europe, defined as a relatively small wage differentials compared with productivity differences. Using the publicly available data on wages drawn from the Structure of Earnings Survey 2002, it considers the existence of wage compression both across occupations and levels of education by means of cross-sectional econometric analysis. Looking at wage compression across occupations, robust evidence gives some support to the conventional view that there is a compressed wage distribution in Europe. While the estimated wage compression is even higher across the levels of education, the evidence appears much less robust. Wage compression seems to be higher in the euro area and the EU15 than in the twelve New Member States, which is in line with their more flexible wage bargaining setting. Likewise, wage compression with the EU15 mainly occurs in continental and southern countries. Moreover, the compression of wages is not uniform across wage levels and more pronounced at the lower end of the earning distribution.