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Solow and Heterogeneous Labor: A Neoclassical Explanation of Wage Inequality

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  • Meckl, Jürgen

    (Justus Liebig University, Giessen)

  • Zink, Stefan

    (University of Konstanz)

Abstract

The paper analyzes the effect of human-capital investments of heterogeneous individuals on the dynamics of the wage structure within a neoclassical growth model. The accumulation of physical capital changes relative factor prices and thus incentives to acquire skills, thereby altering the composition of the labor force. Without relying on exogenous shocks, our framework generates dynamics that resembles several important observations on wage inequality (e.g., the non-monotone evolution of the skill premium). Additional incorporation of wage rigidities emphasizes the trade off between residual wage inequality and employment opportunities for unskilled labor that is consistent with country-specific evidence.

Suggested Citation

  • Meckl, Jürgen & Zink, Stefan, 2002. "Solow and Heterogeneous Labor: A Neoclassical Explanation of Wage Inequality," IZA Discussion Papers 668, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp668
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    More about this item

    Keywords

    wage inequality; human capital investment; transitional adjustment dynamics; skill-specific unemployment;
    All these keywords.

    JEL classification:

    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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