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Education, Wage Dynamics, and Wealth Inequality

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  • Heejeong Kim

    (Concordia University)

Abstract

To what extent does heterogeneity in education contribute to wealth inequality and life-cycle savings, and through which pathways? Using the Panel Study Income Dynamics (PSID) data, I estimate skill-specific wage processes, allowing for both deterministic between-group wage dispersion and stochastic within-group wage dispersion. I evaluate the quantitative implications of these wage processes using an incomplete-markets overlapping-generations general equilibrium model in which households choose their education and labor supply. I find that allowing wage processes to vary by skill levels is crucial to understanding wealth inequality and life-cycle savings of skilled and unskilled households. Importantly, stochastic within-group wage dispersion plays a key role in explaining the concentration of wealth at the top and the large difference in the life-cycle savings between the two skill groups. (Copyright: Elsevier)

Suggested Citation

  • Heejeong Kim, 2022. "Education, Wage Dynamics, and Wealth Inequality," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 43, pages 217-240, January.
    • Handle: RePEc:red:issued:19-92
    DOI: 10.1016/j.red.2021.02.006
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    1. Dong, Shizheng & Zhang, Zili & Han, Yiduo & Si, Yanwu, 2023. "Do pension subsidies reduce household education expenditure inequality? Evidence from China," International Review of Economics & Finance, Elsevier, vol. 87(C), pages 532-540.

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    More about this item

    Keywords

    Education; wage differentials; wealth inequality; life-cycle savings;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • I24 - Health, Education, and Welfare - - Education - - - Education and Inequality
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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