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Do skills matter for wage inequality?

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  • Stijn Broecke

    (OECD, France)

Abstract

Policymakers in many OECD countries are increasingly concerned about high and rising inequality. Much of the evidence (as far back as Adam Smith’s The Wealth of Nations) points to the importance of skills in tackling wage inequality. Yet a recent strand of the research argues that (cognitive) skills explain little of the cross-country differences in wage inequality. Does this challenge the received wisdom on the relationship between skills and wage inequality? No, because this recent research fails to account for the fact that the price of skill (and thus wage inequality) is determined to a large extent by the match of skill supply and demand.

Suggested Citation

  • Stijn Broecke, 2016. "Do skills matter for wage inequality?," IZA World of Labor, Institute of Labor Economics (IZA), pages 232-232, February.
    • Handle: RePEc:iza:izawol:journl:y:2016:n:232
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    References listed on IDEAS

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    1. Hanushek, Eric A. & Schwerdt, Guido & Wiederhold, Simon & Woessmann, Ludger, 2015. "Returns to skills around the world: Evidence from PIAAC," European Economic Review, Elsevier, vol. 73(C), pages 103-130.
    2. Dan Devroye & Richard B. Freeman, 2001. "Does Inequality in Skills Explain Inequality in Earnings Across Advanced Countries?," NBER Working Papers 8140, National Bureau of Economic Research, Inc.
    3. Francine D. Blau & Lawrence M. Kahn, 2005. "Do Cognitive Test Scores Explain Higher U.S. Wage Inequality?," The Review of Economics and Statistics, MIT Press, vol. 87(1), pages 184-193, February.
    4. Edwin Leuven & Hessel Oosterbeek & Hans van Ophem, 2004. "Explaining international differences in male skill wage differentials by differences in demand and supply of skill," Economic Journal, Royal Economic Society, vol. 114(495), pages 466-486, April.
    5. Stijn Broecke & Glenda Quintini & Marieke Vandeweyer, 2015. "Why is wage inequality so high in the United States? Pitching cognitive skills against institutions (once again)," Working Papers of VIVES - Research Centre for Regional Economics 504893, KU Leuven, Faculty of Economics and Business (FEB), VIVES - Research Centre for Regional Economics.
    6. Marco Paccagnella, 2015. "Skills and Wage Inequality: Evidence from PIAAC," OECD Education Working Papers 114, OECD Publishing.
    7. Winfried Koeniger & Marco Leonardi & Luca Nunziata, 2007. "Labor Market Institutions and Wage Inequality," ILR Review, Cornell University, ILR School, vol. 60(3), pages 340-356, April.
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    Citations

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    Cited by:

    1. Martin, John P., 2018. "Skills for the 21st Century: Findings and Policy Lessons from the OECD Survey of Adult Skills," IZA Policy Papers 138, Institute of Labor Economics (IZA).
    2. Sonu Madan, 2019. "Wage Differentials Among Workers: An Empirical Analysis of the Manufacturing and Service Sectors," The Indian Journal of Labour Economics, Springer;The Indian Society of Labour Economics (ISLE), vol. 62(4), pages 731-747, December.
    3. Simon Fan & Yu Pang & Pierre Pestieau, 2020. "A model of the optimal allocation of government expenditures," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(4), pages 845-876, August.
    4. Brenda Murillo-Villanueva. & Yolanda Carbajal Suárez. & Leobardo de Jesús Almonte., 2021. "Desigualdad salarial en los subsectores manufactureros en México, 2007-2018. (Wage Inequality in Mexico’s Manufacture, 2007-2018)," Ensayos Revista de Economia, Universidad Autonoma de Nuevo Leon, Facultad de Economia, vol. 0(1), pages 29-54, May.
    5. Sonu Madan & Manisha Yadav, 2022. "Decomposing Skill Based Wage Inequality in India: An Application of Theil Index," The Indian Journal of Labour Economics, Springer;The Indian Society of Labour Economics (ISLE), vol. 65(4), pages 967-979, December.

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    More about this item

    Keywords

    skills; wage inequality; labor market institutions;
    All these keywords.

    JEL classification:

    • I24 - Health, Education, and Welfare - - Education - - - Education and Inequality
    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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