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Earnings Inequality, Returns to Education and Immigration into Ireland

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  • Barrett, Alan
  • Fitz Gerald, John
  • Nolan, Brian

Abstract

Increasing earnings inequality has been an important feature of the US and UK labour markets in recent years. The increase appears to be related to an increased demand for skilled labour and an increase in the returns to education. In this paper we examine what has happened to earnings inequality and the returns to education in Ireland between 1987 and 1997. We find that while both increased between 1987 and 1994, the increases slowed dramatically between 1994 and 1997. This is somewhat surprising as the exceptional growth in the Irish economy occurred from 1994 on. We look to immigration as being a contributing factor to this pattern because a large group of skilled workers flowed into the Irish labour market between 1994 and 1997. We develop a model of the Irish labour market and use it to simulate the impact of an increase in skilled labour. The simulation suggests that immigration did indeed reduce earnings inequality. This result is an interesting corollary to work from the US that shows the immigration of unskilled workers increasing earnings inequality.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2493.

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Date of creation: Jul 2000
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Handle: RePEc:cpr:ceprdp:2493

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Keywords: Earnings Inequality; Immigration; Ireland; Returns To Education;

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References

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  1. Alan Barrett & Tim Callan & Brian Nolan, 1999. "Returns to education in the Irish youth labour market," Journal of Population Economics, Springer, Springer, vol. 12(2), pages 313-326.
  2. Peter Gottschalk & Mary Joyce, 1997. "Cross-National Differences in the Rise in Earnings Inequality: Market and Institutional Factors," Boston College Working Papers in Economics 366, Boston College Department of Economics.
  3. Stephen Machin & John Van Reenen, 1998. "Technology and changes in skill structure: evidence from seven OECD countries," IFS Working Papers, Institute for Fiscal Studies W98/04, Institute for Fiscal Studies.
  4. Gary Burtless, 1995. "International Trade and the Rise in Earnings Inequality," Journal of Economic Literature, American Economic Association, vol. 33(2), pages 800-816, June.
  5. Bradley, John & Fitzgerald, John, 1988. "Industrial output and factor input determination in an econometric model of a small open economy," European Economic Review, Elsevier, vol. 32(6), pages 1227-1241, July.
  6. Alan Barrett & Philip J. O’Connell, 2001. "Is There a Wage Premium for Returning Irish Migrants?," The Economic and Social Review, Economic and Social Studies, Economic and Social Studies, vol. 32(1), pages 1-21.
  7. Richard B. Freeman, 1991. "How Much Has De-Unionisation Contributed to the Rise in Male Earnings Inequality?," NBER Working Papers 3826, National Bureau of Economic Research, Inc.
  8. Eli Berman & John Bound & Stephen Machin, 1998. "Implications Of Skill-Biased Technological Change: International Evidence," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 113(4), pages 1245-1279, November.
  9. 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.
  10. John M. Abowd & Richard B. Freeman, 1991. "Immigration, Trade and the Labor Market," NBER Books, National Bureau of Economic Research, Inc, number abow91-1.
  11. George J. Borjas & Richard B. Friedman & Lawrence F. Katz, 1997. "How Much Do Immigration and Trade Affect Labor Market Outcomes?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(1), pages 1-90.
  12. Borjas, George J & Ramey, Valerie A, 1994. "Time-Series Evidence on the," American Economic Review, American Economic Association, vol. 84(2), pages 10-16, May.
  13. Borjas, George J & Ramey, Valerie A, 1995. "Foreign Competition, Market Power, and Wage Inequality," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 110(4), pages 1075-1110, November.
  14. Richard B. Freeman & Lawrence F. Katz, 1995. "Differences and Changes in Wage Structures," NBER Books, National Bureau of Economic Research, Inc, number free95-1.
  15. Machin, Stephen, 1997. "The decline of labour market institutions and the rise in wage inequality in Britain," European Economic Review, Elsevier, vol. 41(3-5), pages 647-657, April.
  16. Bradley, John & Fitz Gerald, John & Kearney, Ide, 1993. "Modelling supply in an open economy using a restricted cost function," Economic Modelling, Elsevier, vol. 10(1), pages 11-21, January.
  17. 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.
  18. Gosling, Amanda & Machin, Stephen, 1995. "Trade Unions and the Dispersion of Earnings in British Establishments, 1980-90," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 57(2), pages 167-84, May.
  19. Levy, Frank & Murnane, Richard J, 1992. "U.S. Earnings Levels and Earnings Inequality: A Review of Recent Trends and Proposed Explanations," Journal of Economic Literature, American Economic Association, vol. 30(3), pages 1333-81, September.
  20. John Schmitt, 1993. "The Changing Structure of Male Earnings in Britain," CEP Discussion Papers dp0122, Centre for Economic Performance, LSE.
  21. Juhn, Chinhui & Murphy, Kevin M & Pierce, Brooks, 1993. "Wage Inequality and the Rise in Returns to Skill," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 101(3), pages 410-42, June.
  22. Alois van Bastelaer & Georges Lemaître & Pascal Marianna, 1997. "The Definition of Part-Time Work for the Purpose of International Comparisons," OECD Labour Market and Social Policy Occasional Papers 22, OECD Publishing.
  23. Ide Kearney, 1997. "Estimating the Demand for Skilled Labour, Unskilled Labour and Clerical Workers: A Dynamic Framework," Papers, Economic and Social Research Institute (ESRI) WP091, Economic and Social Research Institute (ESRI).
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