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Wage inequality, segregation by skill and the price of capital in an assignment model

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  • Ángel Gavilán

    ()
    (Banco de España)

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    Abstract

    Some pieces of empirical evidence suggest that in the U.S., over the last few decades, (i) wage inequality between-plants has risen much more than wage inequality within-plants and (ii) there has been an increase in the segregation of workers by skill into separate plants. This paper presents a frictionless assignment model in which these two features can be explained simultaneously as the result of the decline in the relative price of capital. Additional implications of the model regarding the skill premium and the dispersion in labor productivity across plants are also consistent with the empirical evidence.

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    File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/06/Fic/dt0613e.pdf
    File Function: First version, June 2006
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    Bibliographic Info

    Paper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 0613.

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    Length: 41 pages
    Date of creation: Jun 2006
    Date of revision:
    Handle: RePEc:bde:wpaper:0613

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    Keywords: wage inequality; segregation by skill; assignment model; price of capital;

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    References

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    1. Neil E. Gretsky & Joseph M. Ostroy & William R. Zame, 1990. "The Nonatomic Assignment Model," UCLA Economics Working Papers 605, UCLA Department of Economics.
    2. Per Krusell & Lee E. Ohanian & JosÈ-Victor RÌos-Rull & Giovanni L. Violante, 2000. "Capital-Skill Complementarity and Inequality: A Macroeconomic Analysis," Econometrica, Econometric Society, vol. 68(5), pages 1029-1054, September.
    3. Timothy Dunne & John Haltiwanger & Lucia Foster, 2000. "Wage and Productivity Dispersion in U.S. Manufacturing: The Role of Computer Investment," NBER Working Papers 7465, National Bureau of Economic Research, Inc.
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    9. David H. Autor & Lawrence F. Katz & Alan B. Krueger, 1997. "Computing Inequality: Have Computers Changed the Labor Market?," NBER Working Papers 5956, National Bureau of Economic Research, Inc.
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    14. Sattinger, Michael, 1993. "Assignment Models of the Distribution of Earnings," Journal of Economic Literature, American Economic Association, vol. 31(2), pages 831-80, June.
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    17. Tjalling C. Koopmans & Martin J. Beckmann, 1955. "Assignment Problems and the Location of Economic Activities," Cowles Foundation Discussion Papers 4, Cowles Foundation for Research in Economics, Yale University.
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    21. Gordon, Robert J., 1990. "The Measurement of Durable Goods Prices," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226304557, December.
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    Cited by:
    1. Eeckhout, Jan & Jovanovic, Boyan, 2012. "Occupational choice and development," Journal of Economic Theory, Elsevier, vol. 147(2), pages 657-683.

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