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Solow and Heterogeneous Labor: A Neoclassical Explanation of Wage Inequality

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Author Info

  • 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.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 668.

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Length: 31 pages
Date of creation: Dec 2002
Date of revision:
Publication status: published in: Economic Journal, 2004, 114 (498), 835-854
Handle: RePEc:iza:izadps:dp668

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Related research

Keywords: wage inequality; human capital investment; transitional adjustment dynamics; skill-specific unemployment;

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References

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  1. Dinopoulos, Elias & Segerstrom, Paul, 1996. "A Schumpeterian Model of Protection and Relative Wages," Working Paper Series 471, Research Institute of Industrial Economics.
  2. David Autor & Lawrence Katz & Alan Krueger, 1997. "Computing Inequality: Have Computers Changed the Labor Market?," Working Papers 756, Princeton University, Department of Economics, Industrial Relations Section..
  3. Acemoglu, Daron, 1996. "Changes in Unemployment and Wage Inequality: An Alternative Theory and Some Evidence," CEPR Discussion Papers 1459, C.E.P.R. Discussion Papers.
  4. Ann P. Bartel & Nachum Sicherman, 1997. "Technological Change and Wages: An Inter-Industry Analysis," NBER Working Papers 5941, National Bureau of Economic Research, Inc.
  5. Lawrence F. Katz & Kevin M. Murphy, 1991. "Changes in Relative Wages, 1963-1987: Supply and Demand Factors," NBER Working Papers 3927, National Bureau of Economic Research, Inc.
  6. Daron Acemoglu, 2002. "Technical Change, Inequality, and the Labor Market," Journal of Economic Literature, American Economic Association, vol. 40(1), pages 7-72, March.
  7. Daron Acemoglu, 1998. "Why Do New Technologies Complement Skills? Directed Technical Change And Wage Inequality," The Quarterly Journal of Economics, MIT Press, vol. 113(4), pages 1055-1089, November.
  8. Robert J. Barro, 2012. "Inflation and Economic Growth," CEMA Working Papers 568, China Economics and Management Academy, Central University of Finance and Economics.
  9. Jose V. Rodriguez Mora & John Hassler, 2000. "Intelligence, Social Mobility, and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 888-908, September.
  10. Richard B. Freeman, 1996. "Labor market institutions and earnings inequality," New England Economic Review, Federal Reserve Bank of Boston, issue May, pages 157-172.
  11. Taber, Christopher R, 2001. "The Rising College Premium in the Eighties: Return to College or Return to Unobserved Ability?," Review of Economic Studies, Wiley Blackwell, vol. 68(3), pages 665-91, July.
  12. James Albrecht & Susan Vroman, 2002. "A Matching Model with Endogenous Skill Requirements," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(1), pages 283-305, February.
  13. Galor, Oded & Tsiddon, Daniel, 1996. "Technological Progress, Mobility, and Economic Growth," CEPR Discussion Papers 1413, C.E.P.R. Discussion Papers.
  14. Jürgen Meckl & Stefan Zink, 2002. "Human-capital investment and the wage gap," Economic Theory, Springer, vol. 19(4), pages 853-859.
  15. Michael T. Kiley, 1997. "The supply of skilled labor and skill-based technological progress," Finance and Economics Discussion Series 1997-45, Board of Governors of the Federal Reserve System (U.S.).
  16. Galor, Oded & Moav, Omer, 1998. "Ability Biased Technological Transition, Wage Inequality and Growth," CEPR Discussion Papers 1972, C.E.P.R. Discussion Papers.
  17. Postel-Vinay, Fabien & Robin, Jean-Marc, 2002. "Equilibrium Wage Dispersion with Worker and Employer Heterogeneity," CEPR Discussion Papers 3548, C.E.P.R. Discussion Papers.
  18. Jacob Mincer, 1991. "Human Capital, Technology, and the Wage Structure: What Do Time Series Show?," NBER Working Papers 3581, National Bureau of Economic Research, Inc.
  19. Card, David, 1996. "The Effect of Unions on the Structure of Wages: A Longitudinal Analysis," Econometrica, Econometric Society, vol. 64(4), pages 957-79, July.
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Citations

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Cited by:
  1. Backman, Mikaela & Bjerke, Lina, 2009. "Returns to Higher Education - a regional perspective," Working Paper Series in Economics and Institutions of Innovation 171, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
  2. Atsushi Miyake & Kazunobu Muro & Tamotsu Nakamura & Masaya Yasuoka, 2009. "Between- and within-group wage inequalities, and the advent of new technology," Journal of Economic Inequality, Springer, vol. 7(4), pages 387-394, December.
  3. Masaya Yasuoka, 2013. "Subsidies for Elderly Care in Pay-As-You-Go Pension," Discussion Paper Series 109, School of Economics, Kwansei Gakuin University, revised Sep 2013.

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