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Schooling, Inequality and Government Policy

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Author Info

  • Oleksiy Kryvtsov
  • Alexander Ueberfeldt

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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Bibliographic Info

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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Keywords: Labour markets; Potential output; Productivity;

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References

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Cited by:
  1. Simona Cociuba & Alexander Ueberfeldt, 2012. "Heterogeneity and Long-Run Changes in U.S. Hours and the Labor Wedge," University of Western Ontario, CIBC Centre for Human Capital and Productivity Working Papers 20124, University of Western Ontario, CIBC Centre for Human Capital and Productivity.

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