Introduction:

Within the previous decades the wage gap between high and low qualified employees has been significantly spreading out in a number of countries. This process started mainly in the United States at the end of the 1970s and then swept over to Great Britain, whereas in continental Europe it took some 15 years before the wage gap started to widen as well. Economic literature offers different theoretical explanations for this phenomenon, for which the process of globalization and, alternatively, (skill biased) technical change are the most prominent bases. However, both theoretical bases are not perfectly plausible, and especially the globalization base for explaining the rising wage gap contradicts central empirical observations.

In this paper we firstly present the empirical picture of the widening wage gap in some chosen industrialized countries, namely Australia, the United Kingdom, the United States, and Germany. We specifically test as to whether a change in the structure of labour supply or, alternatively, a change in returns to education is behind the rising wage gap. We then give an overview of the most prominent theoretical approaches for explaining the rise in the wage gap. Here, we especially discuss the issue that empirical observations contradict some implications of the theoretical explanations typically offered in the economic literature. In the last section, we draw some conclusions.