Abstract:

The recent global crisis, which represents the worst macroeconomic downturn since the 1930s for most European countries, is far from being completely resolved. Despite signs of improvement have been emerging since mid-2013, with a modest resumption of employment growth, recovery remains weak, and the crisis is likely to leave deep traces on the economic performance of each country. In particular, changes in income distribution may be affected by structural changes in the composition of the labour force that is currently characterised by a shrinking of the jobs in the middle of the skills hierarchy. However, the labour demand is closely linked to the supply of educated labour that, in turn, depends on school quality and, thus, on how the formal education is organised. Generally, in advanced economies, educations systems are viewed on the basis of different dimensions (stratification, standardisation and vocational specificity) whose combinations are thought to determine the capacity of the same systems to structure the flow of young people into adult strata defined by occupational positions.

Based on the strong linkage between education and labour market systems, the research hypothesis aims to investigate how the returns on education depend on specific features of each country (e.g., ways in which formal education and training are organised and differentiated) and on the internal demand for skills, e.g., ways in which the contraction in the demand of middle-qualified activities favour the demand of jobs occupying the top and bottom of the skills hierarchy (job polarisation) or just the high-qualified activities (upgrading of occupations). More precisely, the paper deals with the effect of human capital (formal education, work experience) on workers’ earnings comparatively for France, Germany, Italy, and the United Kingdom, four countries of Western Europe with different combinations of stratification/standardisation processes in their education systems, and alternative patterns of the structure of the labour market.

In a methodological perspective, the UQR (Unconditional Quantile Regression), drawn upon EU-SILC data, allows reaching two purposes: first, evaluating the changes over time (2005-2013) in the marginal quantile of wage distribution and the differences in returns on education at different points of the distribution; second, decomposing the total temporal gaps into composition effect (portion of the change attributable to the employees’ characteristics), and wage structure (capability of the country’s labour market to transform individual skills into job opportunities and earnings) with a special focus on the contribution of education to both components.

In short, the results confirm the social profitability of investing in education, even though the returns are sensitive to countries’ contexts. The education system and the employment structure explain the changes in the wage levels differently along the several quantiles of the distribution. For example, a clear contrast in terms of differentials in returns on education exists in favour of the highly stratified and more vocationally oriented system of Germany, where a well-defined structure of job polarisation also exists.