According to standard economic models, adverse demand shocks will lead to bigger
employment losses if institutional factors like minimum wages and trade unions prevent real
wages from falling. Some economists have argued that this insight explains the contrast
between the United States, where real wages fell over the 1980s and aggregate employment
expanded vigorously, and Europe, where real wages held steady and employment was
stagnant. We test the hypothesis by comparing recent changes in wages and employment
rates for different age and education groups in the United States, Canada, and France. We
argue that the same forces that led to falling real wages for less-skilled workers in the U.S.
also affected Canada and France. Consistent with the view that labor market institutions in
Canada and France reduce wage flexibility, we find that the relative wages of less-skilled
workers fell more slowly in Canada than the U.S. during the 1980s, and did not fall at all in
France. Contrary to expectations, however, we find little evidence that wage inflexibilities
generated divergent patterns of relative employment growth across the three countries.