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A Welfare Analysis of Policy Responses to the Skilled Wage Premium

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  • William Blankenau

    (Department of Economics, University of Wisconsin-Whitewater)

Abstract

I build a model with heterogeneous agents which is consistent both with rising wage inequality across education levels and with an increasing relative number of college graduates. I use the model to investigate the welfare implications of policies which influence the structure of net wages. Each policy affects agents directly through taxes and subsides and indirectly as wages respond to changes in the relative supply of skilled and unskilled workers. I find that as wage inequality grows due to skill-biased technological change, policies which promote a more egalitarian wage structure can become increasingly acceptable to all agents and that for nearly all agents, education subsidies may be preferred to direct transfers as a means of decreasing wage inequality. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1006/redy.1999.0061
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Bibliographic Info

Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 2 (1999)
Issue (Month): 4 (October)
Pages: 820-849

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Handle: RePEc:red:issued:v:2:y:1999:i:4:p:820-849

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Related research

Keywords: wage inequality; heterogenity; education subsidies; welfare analysis;

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References

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  1. Jagdish Bhagwati, 1995. "Trade and wages: choosing among alternative explanations," Economic Policy Review, Federal Reserve Bank of New York, issue Jan, pages 42-47.
  2. Levy, Frank & Murnane, Richard J, 1992. "U.S. Earnings Levels and Earnings Inequality: A Review of Recent Trends and Proposed Explanations," Journal of Economic Literature, American Economic Association, vol. 30(3), pages 1333-81, September.
  3. Claudia Goldin & Robert A. Margo, 1991. "The Great Compression: The Wage Structure in the United States at Mid- Century," NBER Working Papers 3817, National Bureau of Economic Research, Inc.
  4. Per Krusell & Lee E. Ohanian & Jose-Victor Rios-Rull & Giovanni L. Violante, 1997. "Capital-skill complementarity and inequality: a macroeconomic analysis," Staff Report 239, Federal Reserve Bank of Minneapolis.
  5. Juhn, Chinhui & Murphy, Kevin M & Pierce, Brooks, 1993. "Wage Inequality and the Rise in Returns to Skill," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 410-42, June.
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Citations

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Cited by:
  1. Rodolfo Luzio & Steven Vincent Dunaway & Martin David Kaufman, 2001. "Returns to Human Capital and Investment in New Technology," IMF Working Papers 01/133, International Monetary Fund.
  2. Hui He & Zheng Liu, 2006. "Investment-specific Technical Change and the Dynamics of Skill Accumulation and Wage Inequality," Emory Economics 0609, Department of Economics, Emory University (Atlanta).
  3. Akyol, Ahmet & Athreya, Kartik, 2005. "Risky higher education and subsidies," Journal of Economic Dynamics and Control, Elsevier, vol. 29(6), pages 979-1023, June.
  4. Hui He & Zheng Liu, 2007. "Investment-specific technological change, skill accumulation, and wage inequality," Working Papers 644, Federal Reserve Bank of Minneapolis.
  5. Blankenau, William, 2005. "Public schooling, college subsidies and growth," Journal of Economic Dynamics and Control, Elsevier, vol. 29(3), pages 487-507, March.
  6. Viktar Fedaseyeu & Vitaliy Strohush, 2012. "Loans from the Government, Overinvestment by Households, and Asset Bubbles," Working Papers 443, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  7. William Blankenau & Gabriele Camera, 2006. "A Simple Economic Theory of Skill Accumulation and Schooling Decisions," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(1), pages 93-115, January.
  8. von Greiff, Camilo, 2007. "Effects of Redistribution Policies - Who Gains and Who Loses?," Research Papers in Economics 2007:12, Stockholm University, Department of Economics.
  9. William Blankenau & Steven Cassou & Beth Ingram, 2007. "Allocating Government Education Expenditures Across K-12 and College Education," Economic Theory, Springer, vol. 31(1), pages 85-112, April.
  10. Blankenau, William F. & Cassou, Steven P., 2006. "Labor market trends with balanced growth," Journal of Economic Dynamics and Control, Elsevier, vol. 30(5), pages 807-842, May.

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