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

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  • Dan Devroye
  • Richard Freeman

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 dp0552.

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Date of creation: Nov 2002
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Handle: RePEc:cep:cepdps:dp0552

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Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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Keywords: Wage inequality; distribution of skills; skills and education;

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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, University of Chicago Press, vol. 104(4), pages 791-836, August.
  2. 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.
  3. Maria Guadalupe, 2002. "The hidden costs of fixed term contracts: the impact on work accidents," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 20064, London School of Economics and Political Science, LSE Library.
  4. Gilles Duranton, 2002. "City Size Distributions As A Consequence of the Growth Process," CEP Discussion Papers dp0550, Centre for Economic Performance, LSE.
  5. Francine D. Blau & Lawrence Kahn, 2004. "Do Cognitive Test Scores Explain Higher U.S. Wage Inequality?," CESifo Working Paper Series 1139, CESifo Group Munich.
  6. Stephen J Nickell & Stephen Redding & Joanna Swaffield, 2002. "Educational attainment, labour market institutions, and the structure of production," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 3706, London School of Economics and Political Science, LSE Library.
  7. Richard V. Burkhauser & John G. Poupore, 1997. "A Cross-National Comparison Of Permanent Inequality In The United States And Germany," The Review of Economics and Statistics, MIT Press, vol. 79(1), pages 10-17, February.
  8. 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, Royal Economic Society, vol. 114(495), pages 466-486, 04.
  9. Griliches, Zvi & Mason, William M, 1972. "Education, Income, and Ability," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 80(3), pages S74-S103, Part II, .
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