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Schooling, Inequality and Government Policy

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Author Info
Oleksiy Kryvtsov
Alexander Ueberfeldt

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Abstract

This paper asks: What is the effect of government policy on output and inequality in an environment with education and labor-supply decisions? The answer is given in a general equilibrium model, consistent with the post 1960s facts on male wage inequality and labor supply in the U.S. In the model, education and labor-supply decisions depend on progressive income taxation, the education system, the social security system, and technology-driven wage differentials. Government policies affect output and inequality through two channels. First, a policy change leads to an asymmetric adjustment of working hours and savings of schooled and unschooled individuals. Second, there is a redistribution of the workforce between schooled and unschooled workers. Using a battery of proposed government policies, we demonstrate that skill redistribution dampens the response of wage inequality to a policy change and amplifies the response of output by an additional 1 to 2 percent.

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File URL: http://www.bankofcanada.ca/en/res/wp/2007/wp07-12.pdf
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Paper provided by Bank of Canada in its series Working Papers with number 07-12.

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Length: 65 pages
Date of creation: 2007
Date of revision:
Handle: RePEc:bca:bocawp:07-12

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Related research
Keywords: Labour markets; Potential output; Productivity;

Find related papers by JEL classification:
H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. 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. [Downloadable!]
    Other versions:
  2. Greenwood, Jeremy & Hercowitz, Zvi & Krusell, Per, 1997. "Long-Run Implications of Investment-Specific Technological Change," American Economic Review, American Economic Association, vol. 87(3), pages 342-62, June. [Downloadable!] (restricted)
    Other versions:
  3. Katz, Lawrence F. & Autor, David H., 1999. "Changes in the wage structure and earnings inequality," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 26, pages 1463-1555 Elsevier. [Downloadable!] (restricted)
  4. Larry E. Jones & Rodolfo E. Manuelli & Ellen R. McGrattan, 2003. "Why are married women working so much?," Staff Report 317, Federal Reserve Bank of Minneapolis. [Downloadable!]
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