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Does Inequality in Skills Explain Inequality of Earnings Across Advanced Countries?

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Author Info
Dan Devroye
Richard Freeman

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Abstract

The distribution of earnings and the distribution of skills vary widely among advanced countries, with the major English-speaking countries, the US, UK, and Canada, having much greater inequality in both earnings and skills than continental European Union countries. This raises the possibility that cross-country differences in the distribution of skills determine cross-country differences in earnings inequality. Using the International Adult Literacy Survey, we find that skill inequality explains only about 7% of the cross-country difference in inequality. Most striking, the dispersion of earnings in the US is larger in narrowly defined skill groups than is the dispersion of earnings for European workers overall. The bulk of cross-country differences in earnings inequality occur within skill groups, not between them

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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number 0552.

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Date of creation: Nov 2002
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Handle: RePEc:cep:cepdps:0552

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Keywords: Wage inequality distribution of skills skills and education

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Find related papers by JEL classification:
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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References listed on IDEAS
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  1. Blau, Francine D & Kahn, Lawrence M, 1996. "International Differences in Male Wage Inequality: Institutions versus Market Forces," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 791-836, August. [Downloadable!] (restricted)
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  2. Nickell, Stephen & Bell, Brian, 1995. "The Collapse in Demand for the Unskilled and Unemployment across the OECD," Oxford Review of Economic Policy, Oxford University Press, vol. 11(1), pages 40-62, Spring.
  3. Griliches, Zvi & Mason, William M, 1972. "Education, Income, and Ability," Journal of Political Economy, University of Chicago Press, vol. 80(3), pages S74-S103, Part II, . [Downloadable!] (restricted)
  4. Francine D. Blau & Lawrence M. Kahn, 2001. "Do Cognitive Test Scores Explain Higher US Wage Inequality?," NBER Working Papers 8210, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. E Leuven & H Oosterbeeh & H van Ophern, 1998. "Explaining International Differences in Male Wage Inequality by differences in Demand and Supply of Skill," CEP Discussion Papers 0392, Centre for Economic Performance, LSE.
  6. Richard J. Murnane & John B. Willett & Frank Levy, 1995. "The Growing Importance of Cognitive Skills in Wage Determination," NBER Working Papers 5076, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Edwin Leuven & Hessel Oosterbeek & Hans van Ophem, 2004. "Explaining international differences in male skill wage differentials by differences in demand and supply of skill," Economic Journal, Royal Economic Society, vol. 114(495), pages 466-486, 04. [Downloadable!] (restricted)
  8. Freeman, Richard & Schettkat, Ronald, 2001. "Skill Compression, Wage Differentials, and Employment: Germany vs the US," Oxford Economic Papers, Oxford University Press, vol. 53(3), pages 582-603, July.
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(explanations, 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. Edin, Per-Anders & Gustavsson, Magnus, 2004. "Time Out of Work and Skill Depreciation," Working Paper Series 2004:14, Uppsala University, Department of Economics. [Downloadable!]
    Other versions:
  2. Reuben Gronau & Daniel S. Hamermesh, 2001. "The Demand for Variety: A Household Production Perspective," NBER Working Papers 8509, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. John Schmitt & Jonathan Wadsworth, 2002. "Is the OECD Jobs Strategy Behind US and British Employment and Unemployment Success in the 1990s?," SCEPA Working Papers 2002-06, Schwartz Center for Economic Policy Analysis (SCEPA), New School University. [Downloadable!]
  4. Michael Burda & Daniel S. Hamermesh & Philippe Weil, 2007. "Total Work, Gender and Social Norms," IZA Discussion Papers 2705, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  5. Fershtman, Chaim & Hvide, Hans K & Weiss, Yoram, 2003. "Cultural Diversity, Status Concerns and the Organization of Work," CEPR Discussion Papers 3982, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  6. Andrea Vindigni, 2002. "Uncertainty and the Politics of Employment Protection," Working Papers 844, Princeton University, Department of Economics, Industrial Relations Section.. [Downloadable!]
  7. Alena Bicakova, 2006. "Market vs. Institutions: The Trade-off Between Unemployment and Wage Inequality Revisited," Economics Working Papers ECO2006/31, European University Institute. [Downloadable!]
  8. Stephen Nickell, 2003. "Poverty and Worklessness in Britain," CEP Discussion Papers dp0579, Centre for Economic Performance, LSE. [Downloadable!]
    Other versions:
  9. Heshmati, Almas, 2004. "Inequalities and Their Measurement," IZA Discussion Papers 1219, Institute for the Study of Labor (IZA). [Downloadable!]
  10. Hipolito , Simon, 2008. "International Differences in Wage Inequality: A New Glance with European Matched Employer-Employee Data," MPRA Paper 7932, University Library of Munich, Germany. [Downloadable!]
  11. The Treasury, 2001. "Human Capital and the Inclusive Economy," Treasury Working Paper Series 01/16, New Zealand Treasury. [Downloadable!]
  12. Simone Bertoli & Francesco Farina, 2007. "The functional distribution of income: a review of the theoretical literature and of the empirical evidence around its recent pattern in European countries," Department of Economic Policy, Finance and Development (DEPFID) University of Siena 005, Department of Economic Policy, Finance and Development (DEPFID), University of Siena. [Downloadable!]
  13. Elizabeth Cascio & Damon Clark & Nora Gordon, 2008. "Education and the Age Profile of Literacy into Adulthood," NBER Working Papers 14073, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  14. Timothy M. Smeeding, 2002. "Globalization, Inequality, and the Rich Countries of the G-20: Evidence from the Luxembourg Income Study (LIS)," Center for Policy Research Working Papers 48, Center for Policy Research, Maxwell School, Syracuse University. [Downloadable!]
  15. Blau, Francine & Kahn, Lawrence, 2004. "Do Cognitive Test Scores Explain Higher U.S. Wage Inequality?," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
    Other versions:
  16. Sunde, Uwe, 2001. "Human Capital Accumulation, Education and Earnings Inequality," IZA Discussion Papers 310, Institute for the Study of Labor (IZA). [Downloadable!]
  17. Melchor Fernández & Alberto Meixide & Hipólito J. Simón, . "El trabajo de bajos salarios en España," Studies on the Spanish Economy 152, FEDEA. [Downloadable!]
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